Market Structures & Business Organizations Study Guide

What are the four conditions for perfect competition?

1. Many buyers & sellers participate in the market

2. Seller offer identical products

3. Buyers & sellers are well informed about products

4. Seller are able to enter the market freely

What is commodity?

A product that is considered the same no matter where you buy it

Why is commodity important for perfect competition?

No matter where you get the product it’s the same

What is imperfect condition?

A market structure that does not meet the conditions of perfect condition

What is a monopoly?

A market dominated by a single seller

What are economies of scale?

Characteristics that cause a producers average cost to drop as production rises

What are natural monopolies?

A market that runs most efficiently when one large firm supplies all of the output

What are government monopolies?

Monopolies run by the government

What is a patent?

A license that gives the inventor of a new product the exclusive right to sell it for a certain period of time

What is a franchise?

The right to sell a good or service within an exclusive market

What is a license?

A government-issued right to operate a business

What is the monopolist’s dilemma?

Buyers will demand more of a good at a lower price and less at higher prices

What is price discrimination?

Division of customers into groups based on how much they will pay for a good

What is market power?

The ability of a company to change prices and output like a monopolist

What are the four conditions of monopolistic competition?

1. Many firms

2. Few artificial barriers to entry

3. Slight control over price

4. Differentiated products

What is an oligopoly?

A market structure in which a few large firms dominate a market

What is price leadership?

Controlling more of the market & selling slightly different products

What is collusion?

An agreement among firms to divide the market, set prices, or limit production

What is price fixing?

An agreement among firms to chare one price for the same good

What is a cartel?

A formal organization of producers that agree to coordinate prices & production

What does the government do to encourage market competition?

Make laws preventing monopolies that impact competition and a consumer accessible market

What are the three types of partnerships?

1. General partnership

2. Limited partnership

3. Limited liability partnership

What are the advantages of a partnership?

• Partnerships are easy to establish

  • The law doesn’t require a written partnership agreement

    • Articles of partnership: a partnership agreement, shows partners right and responsibilities

• The government does not dictate how partnerships conduct business

• Large pool of capital