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Economics Chapter 7

Terms in this set (45)

Competition
involves all the actions that sellers, acting independently, take to get buyers to purchase their products
market structure
an economic model that helps economists examine the nature and degree of competition among businesses in the same industry
perfect competition
the ideal model of a market economy
Five characteristics of perfect competition
numerous buyers and sellers; standardized product; freedom to enter and exit markets; independent buyers and sellers; well-informed buyers and sellers
standardized product
a product that consumers consider identical in all essential features to other products in the same market
price taker
a business that accepts the market price determined by supply and demand
imperfect competition
occurs in markets that have few sellers or products that are not standardized
many buyers and sellers (perfect competition)
a large number of buyers and sellers ensures that no one controls prices
standardized products (perfect competition)
all products are essentially the same
freedom to enter and exit markets (perfect competition)
producers can enter or exit the market with no interference
independent buyers and sellers (perfect competition)
buyers and sellers do not band together to influence prices
well-informed buyers and sellers (perfect competition)
both buyers and sellers know the market prices and other conditions
monopoly
a market structure in which only one seller sells a product for which there are no close substitutes
cartel
a formal organization of sellers or producers that agree to act together to set prices and limit output
price maker
a business that does not have to consider competitors when setting its prices
barrier to entry
something that hinders a business from entering a market
Characteristics of a Monopoly
only one seller; restricted, regulated market; control of prices
only one seller (monopoly characteristics)
a single business controls the supply of a product that has no close substitutes
control of prices (monopoly characteristics0
monopolies act as price makers because they sell products that have no close substitutes and they face no competition
restricted, regulated market (monopoly characteristics)
government regulations or other barriers to entry keep other firms out of the market
natural monopoly
a market situation in which the costs of production are lowest when only on firm provides output
government monopoly
a monopoly that exists because the government either owns and runs the business or authorizes only one producer
technological monopoly
a monopoly that exists because the firm controls a manufacturing method, an invention, or a type of technology
geographic monopoly
a monopoly that exists because there are no other producers or sellers within a certain region
economies of scale
a situation in which the average cost of production falls as the producer grows larger
patent
gives an inventor the exclusive property rights to that invention or process for a certain number of years
monopolistic competition
occurs when many sellers offer similar, but not standardized, products
product differentiation
the attempt to distinguish a product from similar products
nonprice competition
occurs when producers use factors other than low price to try to convince customers to buy their products
Characteristics of Monopolistic Competition
many sellers and many buyers; similar but differentiated products; limited control of prices; freedom to enter or exit market
focus group
a moderated discussion with small groups of consumers
oligopoly
a market structure in which only a few sellers offer a similar product
market share
a company's percent of total sales in a market
start-up costs
the expenses a new business faces when it enters a market
Characteristics of an Oligopoly
few sellers and many buyers; standardized or differentiated products; more control of prices; little freedom to enter or exit market
regulation
a set of rules or laws designed to control business behavior
antitrust legislation
defines monopolies and gives government the power to control them
trust
a group of firms combined in order to reduce competition in an industry
merger
the joining of two firms to form a single firm
price fixing
occurs when businesses agree to set prices for competing products
market allocation
occurs when competing businesses divide a market amongst themselves
predatory pricing
occurs when businesses set prices below cost for a time to drive competitors out of a market
cease and desist order
a ruling that requires a firm to stop unfair business practice
public disclosure
a policy that requires businesses to reveal product information
deregulation
reducing or removing government oversight and control of business
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