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Economics Topic 4 Review
Terms in this set (20)
What are the characteristics of pure competition?
many buyers/sellers, identical products, informed buyers/sellers, easy market entry/exit
what are some examples of purely competitive markets?
sugar, notebook paper, farmers market
stocks traded on New York stock design
Three teenagers earn money by mowing the lawn for different people in the neighborhood. Is this labor market purely competitive or monopolistic?
why do high start-up costs serve as a barrier to market entry?
by limiting potential suppliers to the few with large amounts of capital
what would most likely happen to suppliers in a purely competitive market who are not as efficient as other suppliers?
they would be driven from the market
why does the government usually regulate natural monopolies?
to keep the monopolist from having too much power
what might happen if a monopolist increased output of its products each week?
the price of the good will eventually fall and so would revenue
why do monopolists engage in price discrimination?
they want to maximize their profits
Why does the government grant patents to some firms that develop new products?
to encourage firms to research new prodects that may bebefit society
what happens to the average total cost curve for a company with economics of scale?
when production increases, the cost of production falls
what are the characteristics of monopolistic competition?
many firms, low barriers to entry, little control over price, differentiated products
if Toyota producers a Prius that got 80 miles per gallon, what form of non-price competition would that be?
why does the government regulate oligopolies?
to prevent them from acting like monopolies
how can collusion be harmful to consumers?
it can make consumers pay too much for goods & services
if the 4 largest producers of potato chips agreed to form a organization that produced a limited amount of chips for there next year in order to inflate the price, what would the be creating?
why would a firm try to increase its market power?
to charge higher prices for the goods it produces
why is predatory pricing an unprofitable strategy for a company to use over the long term?
the company loses money
why does the government intervene in markets?
to promote competition & keep prices low for consumers
why might a firm go out of business after their industry was deregulated?
because they couldn't successfully compete with new firms entering the market
what effect did deregulation have on the airline industry?
lower ticket prices
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