Studied by 235 peoplePerfect Competition
A market structure in which a large number of firms all produce the same product
Commodity
a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk
Monopoly
Single producer supplies a unique product that has no close substitutes
Resource Monopoly
Single producer owns a key natural resource - only stone quarry in a town
Government-Created Monopoly
Gov't grants single firm or individual exclusive right to produce a good or service - patent/copyright, public franchise, licenses
Natural Monopoly
Single firm can supply a good or service more efficiently and at a lower cost than two or more firms and competing firms can - utility industries
Oligopoly
A market structure in which a few large firms dominate a market
Price leadership
Pattern of pricing in which one firm regularly announces price changes that other firms then match
Collusion
Producers get together and make agreements on production levels and pricing
Cartel Formation
Organization of producers established to set production and price levels for a product.
Monopolistic Competition
A market structure with many competitors selling differentiated products. Barriers to entry are low.
Non-price competition
Using product differentiation and advertising to attract customers
Market Failure
a situation in which a market left on its own fails to allocate resources efficiently
Positive Externality
Benefits falls on someone other than the producer or consumer
One example of a positive externality is
immunizations
Negative Externality
Cost that falls on someone other than the producer or consumer
One example of a negative externality is
Factory pollution
Public goods
Goods that are non-excludable and non-rival in consumption
Private goods
Goods and services sold in markets - rival and excludable
Non-excludable
Producers cannot prevent particular individuals from enjoying its benefits.
Excludable
People are excluded from using the good unless they pay a price for it.
Non-rival in consumption
Goods may be consumed by one consumer without preventing simultaneous consumption by others.
Rival in consumption
the property of a good whereby one person's use diminishes other people's use
Example of public goods
-fire and police services -national defense -public parks
Example of private goods
-Apples -Ice cream cones -Clothing
Free-rider problem
occurs whenever someone receives a benefit without having to pay for it
Free-rider example
Fireworks
Protecting Property Rights
The government protects the ownership of resources, such as land, personal possessions, physical assets, and ideas
Maintaining Competition
The government works to prohibit practices that restrict competition and to prevent the formation of monopolies
Protecting consumers, savers, and investors
The government provides information about products and makes sure goods and services are safe and dependable
Protecting workers
The government works to safeguard the interests of workers and to protect their physical well-being
Addressing externalities
The government works to promote positive externalities and limit negative externalities
Providing public goods
The government produces goods and services that anyone can use free of charge
Promoting economic stability
The government makes sure that jobs are secure, goods and services are readily available, and prices are predictable
Redistributing income
The government collects taxes from some Americans and distributes the money to others to achieve greater income equality
The power of federal government to regulate the economy comes from Article _________ of the __________________________________ .
Article I of the U.S. Constitution
3 benefits to private ownership?
-encourages people to take care of their property. -encourages people to make the most productive use of their property. -encourages people to develop their property in ways that benefit others.
Where in the constitution is eminent domain?
The Fifth Amendment to the Constitution added a new element—paying the private owner for property taken under eminent domain.
What does eminent domain allow the government to do?
The power of a government to take an individual's property for public use if the owner is fairly compensated
Benefits of competition in the market?
The pressures of competition force producers to use resources efficiently, to develop new or better products, and to keep products and services affordable.
How does the government (Justice Department) ensure competition?
Through its Antitrust Division, enforces the antitrust laws that Congress has enacted over the years.
Merger; why are they illegal?
The combining of two or more separately owned firms into a single firm; can become illegal if it will substantially lessen competition or tend to create a monopoly.
2 examples of benefits consumers, savers and investors receive form this regulation:
-ensure that products are safe and dependable. -The Securities and Exchange Commission protects investors by making sure they have the information they need to judge whether to buy, sell, or hold a particular security.
Benefits of protecting workers
workers get the wages due to them, fostering workplaces that are free of discrimination, and providing unemployment insurance.
Drawback/cost of protecting consumers, savers and investors
Overregulation; can be very expensive and so detailed and complex that they actually discourage economic activity.
Drawbacks/cost of protecting workers
Balancing costs and benefits; Regulatory capture - a situation in which a regulatory agency is dominated, or captured, by the industry it regulates; a captured agency tends to favor the industry it is meant to regulate more than the public interest
3 benefits of economic stability
jobs are secure, goods and services are readily available, and prices are predictable
Regulating currency
The government promotes economic stability in part by creating a widely accepted currency—the dollar—that maintains its value.
Economic stimulus
a policy or action designed to promote business activity and stimulate economic growth
Benefits to income redistribution programs
Promote well-being, subsidizing food for poor people benefits society as a whole = healthier population, training to give people skills they need to move out of welfare and into the workforce
Drawback/cost of redistributing income?
Critics worry that antipoverty programs promote dependence on the government and reduce people's incentive to become self-sufficient.
Game theory
the study of how people behave in strategic situations; an example of an oligolopy
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