POD B Unit 3 (Ch 7, 11) Terms

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Perfect Competition

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52 Terms
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Perfect Competition

A market structure in which a large number of firms all produce the same product

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Commodity

a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk

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Monopoly

Single producer supplies a unique product that has no close substitutes

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Resource Monopoly

Single producer owns a key natural resource - only stone quarry in a town

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Government-Created Monopoly

Gov't grants single firm or individual exclusive right to produce a good or service - patent/copyright, public franchise, licenses

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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

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Oligopoly

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

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Price leadership

Pattern of pricing in which one firm regularly announces price changes that other firms then match

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Collusion

Producers get together and make agreements on production levels and pricing

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Cartel Formation

Organization of producers established to set production and price levels for a product.

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Monopolistic Competition

A market structure with many competitors selling differentiated products. Barriers to entry are low.

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Non-price competition

Using product differentiation and advertising to attract customers

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Market Failure

a situation in which a market left on its own fails to allocate resources efficiently

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Positive Externality

Benefits falls on someone other than the producer or consumer

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One example of a positive externality is

immunizations

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Negative Externality

Cost that falls on someone other than the producer or consumer

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One example of a negative externality is

Factory pollution

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Public goods

Goods that are non-excludable and non-rival in consumption

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Private goods

Goods and services sold in markets - rival and excludable

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Non-excludable

Producers cannot prevent particular individuals from enjoying its benefits.

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Excludable

People are excluded from using the good unless they pay a price for it.

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Non-rival in consumption

Goods may be consumed by one consumer without preventing simultaneous consumption by others.

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Rival in consumption

the property of a good whereby one person's use diminishes other people's use

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Example of public goods

-fire and police services -national defense -public parks

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Example of private goods

-Apples -Ice cream cones -Clothing

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Free-rider problem

occurs whenever someone receives a benefit without having to pay for it

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Free-rider example

Fireworks

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Protecting Property Rights

The government protects the ownership of resources, such as land, personal possessions, physical assets, and ideas

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Maintaining Competition

The government works to prohibit practices that restrict competition and to prevent the formation of monopolies

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Protecting consumers, savers, and investors

The government provides information about products and makes sure goods and services are safe and dependable

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Protecting workers

The government works to safeguard the interests of workers and to protect their physical well-being

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Addressing externalities

The government works to promote positive externalities and limit negative externalities

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Providing public goods

The government produces goods and services that anyone can use free of charge

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Promoting economic stability

The government makes sure that jobs are secure, goods and services are readily available, and prices are predictable

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Redistributing income

The government collects taxes from some Americans and distributes the money to others to achieve greater income equality

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The power of federal government to regulate the economy comes from Article _________ of the __________________________________ .

Article I of the U.S. Constitution

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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.

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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.

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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

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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.

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How does the government (Justice Department) ensure competition?

Through its Antitrust Division, enforces the antitrust laws that Congress has enacted over the years.

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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.

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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.

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Benefits of protecting workers

workers get the wages due to them, fostering workplaces that are free of discrimination, and providing unemployment insurance.

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Drawback/cost of protecting consumers, savers and investors

Overregulation; can be very expensive and so detailed and complex that they actually discourage economic activity.

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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

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3 benefits of economic stability

jobs are secure, goods and services are readily available, and prices are predictable

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Regulating currency

The government promotes economic stability in part by creating a widely accepted currency—the dollar—that maintains its value.

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Economic stimulus

a policy or action designed to promote business activity and stimulate economic growth

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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

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Drawback/cost of redistributing income?

Critics worry that antipoverty programs promote dependence on the government and reduce people's incentive to become self-sufficient.

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Game theory

the study of how people behave in strategic situations; an example of an oligolopy

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