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Chapter 7: Market Structures
Terms in this set (94)
government shouldn't interfere w/ business affairs
a market structure where a large # of buyers and sellers exchange products
a market structure that lacks one or more of the conditions of a perfect competition
the nature and degree of competition among firms in the same industry
market structure that has all the conditions of perfect competition except 4 identical products
the process of distinguishing a product or offering from others, to target certain markets
agreeing to charge the same or similar prices for a product
an agreement between two or more parties to limit open competition (rival companies cooperate for their mutual benefit in an oligopoly)
the exclusive right to do business in a certain area without competition
a monopoly based on the absence of other sellers in a certain geographic area (a small town drugstore, mom and pop store, etc.)
a market that runs most efficiently when one large firm supplies all of the output; minimizing the overall cost (public utilities)
a market in which there are many buyers but only one seller
economics of scale
the increase in efficiency of production as the # of goods being produced increases; (As businesses grow bigger, they can churn out products more cheaply and quickly)
A monopoly that is based on ownership or control of a manufacturing method.
a monopoly the government owns and operates
a situation in which the market does not distribute resources efficiently
an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
the harm, cost, or inconvenience suffered by a third party because of actions by others; (the noise and inconvenience some people suffer when an airport expands)
beneficial side effect that affects an uninvolved third party; (jobs generated by the airport expansion)
Goods, such as clean air and clean water, that everyone must share
cease and desist order
an order requiring a company to stop an unfair business practice that reduces or limits competition
charging customers different prices for the same product or service
requirement forcing a business to reveal information about its products or its operations to the public
something (as property) held by one party (the trustee) for the benefit of another (the beneficiary)
the organized action of making of goods and services for sale
exclusive right to manufacture, use, or sell any new and useful invention for a specific period
the exclusive right of authors or artists to publish, sell, or reproduce their work for their lifetime plus 50 years
intense competition in which competitors cut retail prices to gain business
level of production where marginal cost equals marginal revenue
Sherman Anti-Trust Act (1890)
First United States law to limit trusts and big business (monopolies) . Any trust that was purposefully restraining interstate trade was illegal.
Clayton Anti-Trust Act (1914)
- created Federal Trade Commission (investigate companies for unfair trade practices)
- prevent corporate abuses by expanding government's regulatory powers
- corrected problems with Sherman Anti-Trust Act
- outlawed monopolies
Robinson-Patman Act (1936)
prevents suppliers from offering discounts to large businesses (price discrimination) to prevent closing of small businesses
Food and Drug Administration (1906)
enforces laws to ensure purity , effectiveness, and truthful labellings of food, drugs and cosmetics; inspects production and shipment of these products
Federal Trade Commission (1914)
empowered a presidentially appointed commission to investigated industries involved in interstate commerce
Securities and Exchange Commission (1934)
Supervised the stock market and eliminated dishonest practices
Environmental Protection Agency (1970)
established in 1970 to protect human health and our environment; monitoring and reducing air/water pollution, overseeing hazardous waste disposal and recycling.
What are the five characteristics of perfect competition?
1. large # of buyers & sellers
2. identical products
3. independent buyers & sellers
4. well-informed buyers & sellers
5. sellers should be free to enter, conduct, or get out of business
what can a decrease in competition within an industry result in?
a firm wielding economic and political power
in what ways is the government involved in the US economy?
the governments role is to promote and encourage competition
what might mergers and acquisitions result in?
smaller, larger firms reducing competition
indirectly, how has the government improved the quality of information available to consumers?
through the accessibility of the internet
what are externalities classified as?
market failures because their costs and benefits are not reflected in the market prices that buyers and sellers pay for the original product
who usually provides public goods to the consumer?
what has the exclusive right to do business within an area without competition?
what happens under profit maximization?
marginal cost equals marginal revenue
what four roles does government play under laissez faire?
1. protecting private property
2. enforcing contracts
3. settling disputes
4. protecting businesses against increased competition from foreign goods
in what document would you find inventor's rights protected?
a patent protection
how many years are the rights of inventors of inventions protected for?
how many years are the copyright of an author protected for?
it lasts for the life of the author plus 70 years
A free enterprise economy may fail if
buyers are ill-informed about the market
Why does government subsidize K-12 education?
Education is an example of a positive externality.
An example of market failure due to inadequate information is illustrated by a
low return on money that could have earned more in another investment
Antitrust legislation has been passed to allow the government to
break up monopolies
In the case of natural monopolies, the goal of government regulations is to
set a level of price and service that would exist under competition
what are the five common forms of market failures?
inadequate competition, inadequate information, resource immobility, failure to provide public goods, the presence of externalities
A firm's decision about how much to supply depends on the structure of the market in which it operates
In perfect competition each firm is free to charge whatever price maximizes its profit or
minimizes its loss.
The demand curve facing an individual producer in perfect competition is a vertical line drawn
perpendicular to the market price.
Businesses often lose monopoly power over time because their profits attract competition or
encourage consumers to find substitutes
The "competition" element of monopolistic competition is that barriers to entry are so low that
any short-run profit will attract new competitors.
Because an oligopoly only has a few firms, each need not consider the effect of its own actions
on competitors' behavior.
The biggest obstacle to maintaining a profitable cartel is the powerful temptation to cheat on
Government antitrust activity tries to prohibit all businesses that monopolize markets.
The Sherman Antitrust Act of 1890 outlawed the creation of trusts, restraint of trade, and
In general, federal deregulation has decreased competition and harmed consumers.
The best way for a single firm in perfect competition to earn a profit is to
keep its costs low
In practice monopolies
sometimes fail to earn a profit
Many people believe monopolies are prevented from abusing consumers by
a fear that if they abuse consumers they will be punished by the government
Firms in an oligopoly are
Which of the following businesses is most likely to operate in monopolistic competition?
a cosmetic firm that produces
different shades of lipstick
The minimum efficient scale is the lowest rate of output at which a firm
advantage of economies of scale
Businesses that all produce exactly the same product and operate in a market that is
dominated by only a few firms are known as
The antitrust law that was first passed to limit restraints of trade was the
A horizontal merger involves firms that
the same market
A(n) __?__ is a product that is identical across all producers
A(n) __?__ firm is so small relative to the size of the market that the firm's choice about
how much to produce has no effect on the market price.
A(n) __?__ is a group of firms that agree to act as a single monopolist to increase the
market price and maximize the group's profits.
One view of government regulation of monopolies is that it is not in the public interest but
in the __?__ of producers
A(n) __?__is any firm or group of firms that tries to monopolize a market
__?__ means that a firm could lower its average cost by producing and selling more products.
The trend toward deregulation was demonstrated by the elimination of the
Civil Aeronautics Board
The U.S. economy has
competitive in the last half century
A natural monopoly emerges when
a firm experiences natural economies of scale
When firms in an oligopoly work together to maintain relatively high prices over long periods
new technologies may reduce their monopoly power
Which of the following firms is not likely to operate in monopolistic competition?
that produces laundry detergent
Each of the following is a possible problem of monopolies except
they may hire too many
workers creating a labor shortage for other firms
Each of the following is a possible problem of monopolies
they may grow inefficient because of a
lack of competition,they may place strong influence on the political process,they may
fail to be innovative or invest in research and development
Long-lasting monopolies are rare because
a profitable monopoly attracts competitors and
If a single firm in perfect competition raises its price by 10 percent
it will sell no products
Federal antitrust officials encourage firms to form mergers
Perhaps the most significant barrier to entry into markets dominated by oligopolies is the
limited number of customers for the product
Firms in monopolistic competition can, in the long run, enter or leave the market with ease
In densely populated areas, natural monopolies include grocery stores, movie theaters, or
restaurants that are geographic monopolies for products sold in local markets
A monopoly is the sole supplier of a product with no close substitutes
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