POD B Unit 3 (Ch 7, 11) Terms

Perfect 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