Economics: Chapter 8

Front 1

What are the 4 types of markets?

Back 1

1. Perfectly Competitive
2. Monopolistic
3. Monopolistic Competitive
4. Oligopoly

Front 2

What are the characteristics that define a market?

Back 2

1. Number of buyers/sellers
2. Identical/different products
3. How easy/difficult to enter the market
4. Are sellers price takers/searchers

Front 3

What are the 4 characteristics of a "Perfectly Competitive" market?

Back 3

1. Has many buyers/sellers
2. All firms sell identical goods
3. Sellers are price takers
4. Firms have easy entry and exit into and out of the market

Front 4

What is a price taker?

Back 4

A seller that can sell all of its output only at the equilibrium price and not at a penny more

Front 5

What are 2 facts that we can state about all price takers?

Back 5

1. Sellers cannot sell for a price that is higher than the equilibrium price
2. Sellers have no incentive to sell for a price lower than the equilibrium

Front 6

Must all four conditions exist for a market to be Perfectly Competitive?

Back 6

No - the main characteristic that has to exist is that all sellers are "price takers"

Front 7

What acts as a signal for firms not in the market to enter?

Back 7

Profits - if firms in the market are making profits, other firms will enter the market

Front 8

What is the market cycle when firms are making a profit?

Back 8

1.Firms in the market are making a profit
2. New firms enter the market
3. Supply rises
4. Prices fall
5. Falling prices/profits are a signal to new firms not to enter the market

Front 9

When the government taxes a firm, what effect does this have on profits?

Back 9

Taxes reduce profits which cause new firms not to enter the market which keeps supply low and prices high

Front 10

What are the 4 characteristics of a Monopoly?

Back 10

1. The market has only 1 seller
2. The product sold by the firm has no close substitutes
3. The "barriers to entry" are high
4. Monopolists are price searchers

Front 11

What is a "Price Searcher"?

Back 11

A seller that can sell some of its output at various prices

Front 12

How does a price searcher know what price to charge?

Back 12

They use trial and error

Front 13

Is a monopolist a price taker or a price searcher?

Back 13

A price searcher

Front 14

What prevents monopolists from charging any price they want?

Back 14

1. Fear of competitors entering the market
2. Fear of government regulation
3. Inability of buyers to pay a price that is too high
4. The sellers desire to sell a certain amount of output

Front 15

Are monopolist companies guaranteed a profit?

Back 15

No
a) there has to be a demand for the product
b) The selling price has to be higher than what it costs to produce the product

Front 16

What are the 3 major "barriers to entry" in a market?

Back 16

1. Legal barriers
2. Extremely low per-unit costs
3. Exclusive ownership of a resource

Front 17

What are the 3 types of "legal barriers"?

Back 17

1. Public Franchises
2. Patents
3. Copyrights

Front 18

What do we call a right granted to a firm to provide a particular good or serviceand exclude all others from doing so?

Back 18

Public Franchise (examples: cable companies, mail delivery, electric company)

Front 19

An exclusive right granted to an inventor of a product or process for a period of 20 year is called ________?

Back 19

Patent

Front 20

Who holds more patents than anyone else in the United States?

Back 20

Thomas Edison

Front 21

This gives authors or originators of literary or artistic productions the right to publish, print, or sell their intellectual property for a period of 70 years

Back 21

Copyright

Front 22

What do we call a firm that can produce a good much cheaper than any of its competitors (lower per-unit cost)so much so that this advantage discourages others from entering the market?

Back 22

Natural monopoly

Front 23

What do we call monopolies that the government protects from competition by issuing public franchises, patents, and copyrights?

Back 23

Government monopolies

Front 24

What do we call monopolies that are not legally protected from competition by the government?

Back 24

Market monopolies

Front 25

In the late 1800's, what did we call firms that merged and acted like monopolies?

Back 25

A Trust

Front 26

What do we call laws that are passed to control monopoly power and preserve and promote competition?

Back 26

Anti-Trust laws

Front 27

What are the 4 characteristics of a "Monopolistic competitive" market?

Back 27

1. Many buyers and sellers
2. Firms produce and sell slightly different products
3. Easy entry into and out of the market
4. Firms are price searchers

Front 28

How do competitors in a Monopolistic competitive market make their products slightly different from their competitors?

Back 28

Advertising, product differentiation (grilled vs. fried), customer service, packaging, location and type of store that the product is sold out of

Front 29

What are the characteristics of an Oligopoly?

Back 29

1.Few sellers
2.Firms produce and sell either identical or slightly different products
3. Barriers to entry are high
4. Firms are price searchers

Front 30

How do we identify oligopolistic firms?

Back 30

The market is dominated by 3 or 4 firms that controll 75-80% of the markets sales. (examples: soft drinks, breakfast cereals, cigarettes)

Front 31

What do we call an ageement in which all firms that are a part of it act as one. They all charge the same price and together, they decide how much to produce?

Back 31

Cartel Agreements

Front 32

Are cartels legal in the U.S.?

Back 32

No

Front 33

What is one of the most powerful and well known cartels in the world?

Back 33

OPEC (Organization of Petroleum Exporting Countries)

Front 34

Do Oligopoly firms tend to follow each others actions or do they operate independently?

Back 34

They tend to follow each others actions (when one raises or lowers price the others tend to do the same thing)

Front 35

A law passed in 1890 that stated that either attempting to become a monopolist or trying to restrain trade is illegal.

Back 35

Sherman Anti-Trust Act

Front 36

This law passed in 1914, made price discrimination and tying contracts illegal.

Back 36

The Clayton Act

Front 37

A law passed in 1914 that prohibited aggressive price cutting sometimes known as "Cutthroat Pricing."

Back 37

The Federal Trade Commission Act

Front 38

A law passed in 1936 that attempted to protect small businesses from the competition of large chain stores, by requiring that special discounts offered to large chain stores also be offered to small businesses.

Back 38

The Robinson-Patman Act

Front 39

This law passed in 1938, gave the Federal Trade Commission the power to deal with false and deceptive advertising and other practices

Back 39

The Wheeler-Lea Act

Front 40

A __________ is a seller that can sell all its output at the equilibrium price but none at 1 penny more.

Back 40

Price-taker

Front 41

Occurs when a seller charges different buyers different prices for the same product and when the price differences are not related to cost differences.

Back 41

Price Discrimination

Front 42

An arrangement whereby the sale of one product depends on the purchase of some other product or products.

Back 42

Tying contract

Front 43

A __________ can sell some of its output at various prices, although it sells less output at higher prices.

Back 43

Price-searcher

Front 44

A _________ is a monopoly that is legally protected from competition.

Back 44

Government monopoly

Front 45

A company that ends up being the only seller of a good because of its low average total cost is called a ________.

Back 45

Natural monopoly

Front 46

A ________ is a right granted to the firm by the government that permits the firm to provide a particular good or service and excludes all others from doing so.

Back 46

Public Franchise