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34 Cards in this Set

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What is Perfect Competition?
A market structure in which a large number of firms all produce the same product.
"Pure Competition" assumes market is in equillibrium and that all firms sell the same product for the same price.
What is a Commodity?
A product considered the same regardless of who makes or sells it.
Examples: gasoline, notebook paper, & milk
What is a "Barrier to Entry"?
Factors that make it difficult for new firms to
enter a market
Can lead to "imperfect competition due to common barriers like startup costs or imperfect competition.
What is Imperfect Competition?
A market structure that does not meet the conditions of
perfect competition.
Barriers to entry such as start up costs and technology keep entrepreneurs out of business
What are Start-up Costs?
The expenses a firm must pay before it can begin to produce and sell goods.
Can lead to lose large investments or even bankruptcy
What is a/an Monopoly?
A marker forms when barriers prevent firms form entering a market that has a single supplier.
Barriers to entry are the reason that allows monopolies to exist.
What are Economies of Scale?
Factors that cause a producer's average cost per unit to fall as output rises.
As production increase, the firm becomes more efficient even at a level of output high enough to supply the entire market.
What is a Natural Monopoly?
A market that runs most efficiently when one large firm supplies all of the output.
Ex. Public water; state run water departments do not overlap wasteing resources.
What is a Government Monopoly?
A monopoly created by the government.
Gov. allows the monopoly to form & then regulates it.
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.
Gov. issues to guarantee that companies can profit from their own research without competition.
What is a Franchise?
The right to sell a good or service within an exclusive market.
Ex. The National Park Service Picks a single firm to sell food & camping goods at all National Parks.
What is a License?
A government issued right to operate a business.
Licenses are required for radio & TV broadcast frequencies and land. (ex. FCC regulates radio & TV stations & a single firm manages all parking lots.
What is Price Discrimination?
Division of customers into groups based on how much they will pay for a good.
Based on the idea that each customer has his/her own maximum price he/she will pay for a good.
What is Market Power?
The ability of a company to change prices and output like a monopolist.
Ex. Targeted Discounts & Limits of Price Discrimination (Disc. Air Fares, Mnfr's Rebate offers, Sr. Citizen or student discounts. & Children's flight or rental promotions.
What is Differentiation?
Making a product different from other similar products.
Helps a monopolistically competitive seller to profit from the differences betw. his / her products and competitors' products.
What is Nonprice Competition?
A way to attract customers through style, service, location, but not price.
Takes form of: Physical Characteristics, Location, Service level ,& Advertising, Image, or Status .
What is an Oligopoly?
A market structure in which a few large firms dominate a market.
The 4 largest firms in a market produce about 70-80% of the output.
What is a Price War?
A series of competitive price cuts that lowers the market price below the cost of production.
Competitors cut their prices very low to win business. Harmful to producers but good for consumers.
What is Collusion?
An agreement among firms to divide the market, set prices, or limit production
Firms may agree to sell at the same or very similar prices. An illegal activity in the U.S. calle "price fixing"
What is "Price Fixing"?
An agreement among firms to charge one price for the same good.
This illegal pricing can result from intense competition if advertising is vigorous & new product lines are introduced.
What is a Cartel?
A formal organization of producers that agree to coordinate prices and production.
Illegal in U.S.A., usually short-lived only surviving as long as members agree to predetermined output levels & no more.
What is Predatory Pricing?
Selling a product below cost to drive competitors out of the market.
Predator will lose money each time it drives an endlisss series of rivals out of business in the short term. In the long term they profit heavily.
What are Antitrust Laws?
Laws that encourage competition in the marketplace.
Ex. In 1890, Congress passed the Sherman Antitrust Act outlawing mergers and monopolies limiting trade betw. states. Gave Gov. power to regulate industry.
What is a Trust?
Like a Cartel, an illegal grouping of companies that discourages competition.
Ex. American Tobacco Company, Standard Oil Trust, American Telephone & Telegraph (ATT)
What is a Merger?
Combination of two or more companies into a single firm.
reduce competition and lead to higher prices. Mergers must be approved by Gov. action.
What is Deregulation?
The removal of some government controls over a market. Forced/allowed firms to compete more in markets by eliminating many entry barriers and price controls.
In the 1970s -90's Congress passed legislation to deregulate airlines, trucking, banking, railroads, natural gas & television broadcasting industry
a situation in which producers or sellers of similar goods/services try to get consumers to buy their products or use their services
Competition
It forces businesses to supply goods/services that people want & to sell those goods/services at prices close to the cost of making them
Other Businesses, Monopolies, Monopolistic Competition/Oligopoly & Perfect Competition
4 Types of Market Structures
Government will intervene to insure competition among the four basic m______ s_______
a business that has no competition; it produces a unique product/services
Monopoly
2 Types: Natural & Government Created
a business that provides vital services such as electricity, natural gas & water/sewage
utility company
these markets are usually government sanctioned monopolies
a written guarantee that products/services do what they are supposed to do
warranty
A KIA car carries a 100,000 mile _________on its drive train.
Many companies compete in an open market to sell products that are similar but not identical
Monopolistic Competition
M_____ C_____ include jean makers or book publishers
O________ include cars, movie studios, etc.
A market dominated by a few large, profitable firms; may form cartels and use collusion to set prices
Oligopoly
O_______ include car manufacturers and movie studios
Legislation passed by Congress in 1890 to outlaw mergers and monopolies that limit trade between states
Sherman Anti-Trust Act
President Benjamin Harrison approved this law to insure economic competition among firms & states