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34 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What is Perfect Competition?
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A market structure in which a large number of firms all produce the same product.
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"Pure Competition" assumes market is in equillibrium and that all firms sell the same product for the same price.
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What is a Commodity?
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A product considered the same regardless of who makes or sells it.
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Examples: gasoline, notebook paper, & milk
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What is a "Barrier to Entry"?
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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.
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What is Imperfect Competition?
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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
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What are Start-up Costs?
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The expenses a firm must pay before it can begin to produce and sell goods.
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Can lead to lose large investments or even bankruptcy
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What is a/an Monopoly?
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A marker forms when barriers prevent firms form entering a market that has a single supplier.
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Barriers to entry are the reason that allows monopolies to exist.
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What are Economies of Scale?
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Factors that cause a producer's average cost per unit to fall as output rises.
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As production increase, the firm becomes more efficient even at a level of output high enough to supply the entire market.
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What is a Natural Monopoly?
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A market that runs most efficiently when one large firm supplies all of the output.
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Ex. Public water; state run water departments do not overlap wasteing resources.
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What is a Government Monopoly?
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A monopoly created by the government.
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Gov. allows the monopoly to form & then regulates it.
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What is a Patent?
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A license that gives the inventor of a new product the exclusive right to sell it for a certain period of time.
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Gov. issues to guarantee that companies can profit from their own research without competition.
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What is a Franchise?
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The right to sell a good or service within an exclusive market.
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Ex. The National Park Service Picks a single firm to sell food & camping goods at all National Parks.
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What is a License?
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A government issued right to operate a business.
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Licenses are required for radio & TV broadcast frequencies and land. (ex. FCC regulates radio & TV stations & a single firm manages all parking lots.
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What is Price Discrimination?
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Division of customers into groups based on how much they will pay for a good.
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Based on the idea that each customer has his/her own maximum price he/she will pay for a good.
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What is Market Power?
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The ability of a company to change prices and output like a monopolist.
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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.
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What is Differentiation?
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Making a product different from other similar products.
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Helps a monopolistically competitive seller to profit from the differences betw. his / her products and competitors' products.
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What is Nonprice Competition?
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A way to attract customers through style, service, location, but not price.
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Takes form of: Physical Characteristics, Location, Service level ,& Advertising, Image, or Status .
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What is an Oligopoly?
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A market structure in which a few large firms dominate a market.
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The 4 largest firms in a market produce about 70-80% of the output.
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What is a Price War?
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A series of competitive price cuts that lowers the market price below the cost of production.
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Competitors cut their prices very low to win business. Harmful to producers but good for consumers.
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What is Collusion?
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An agreement among firms to divide the market, set prices, or limit production
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Firms may agree to sell at the same or very similar prices. An illegal activity in the U.S. calle "price fixing"
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What is "Price Fixing"?
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An agreement among firms to charge one price for the same good.
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This illegal pricing can result from intense competition if advertising is vigorous & new product lines are introduced.
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What is a Cartel?
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A formal organization of producers that agree to coordinate prices and production.
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Illegal in U.S.A., usually short-lived only surviving as long as members agree to predetermined output levels & no more.
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What is Predatory Pricing?
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Selling a product below cost to drive competitors out of the market.
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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.
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What are Antitrust Laws?
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Laws that encourage competition in the marketplace.
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Ex. In 1890, Congress passed the Sherman Antitrust Act outlawing mergers and monopolies limiting trade betw. states. Gave Gov. power to regulate industry.
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What is a Trust?
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Like a Cartel, an illegal grouping of companies that discourages competition.
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Ex. American Tobacco Company, Standard Oil Trust, American Telephone & Telegraph (ATT)
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What is a Merger?
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Combination of two or more companies into a single firm.
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reduce competition and lead to higher prices. Mergers must be approved by Gov. action.
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What is Deregulation?
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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.
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In the 1970s -90's Congress passed legislation to deregulate airlines, trucking, banking, railroads, natural gas & television broadcasting industry
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a situation in which producers or sellers of similar goods/services try to get consumers to buy their products or use their services
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Competition
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It forces businesses to supply goods/services that people want & to sell those goods/services at prices close to the cost of making them
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Other Businesses, Monopolies, Monopolistic Competition/Oligopoly & Perfect Competition
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4 Types of Market Structures
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Government will intervene to insure competition among the four basic m______ s_______
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a business that has no competition; it produces a unique product/services
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Monopoly
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2 Types: Natural & Government Created
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a business that provides vital services such as electricity, natural gas & water/sewage
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utility company
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these markets are usually government sanctioned monopolies
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a written guarantee that products/services do what they are supposed to do
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warranty
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A KIA car carries a 100,000 mile _________on its drive train.
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Many companies compete in an open market to sell products that are similar but not identical
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Monopolistic Competition
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M_____ C_____ include jean makers or book publishers
O________ include cars, movie studios, etc. |
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A market dominated by a few large, profitable firms; may form cartels and use collusion to set prices
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Oligopoly
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O_______ include car manufacturers and movie studios
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Legislation passed by Congress in 1890 to outlaw mergers and monopolies that limit trade between states
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Sherman Anti-Trust Act
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President Benjamin Harrison approved this law to insure economic competition among firms & states
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