Chapter 7 Vocabulary Review

A classification that describes the nature and degree of competition among firms in the same industry. Market Structures

A theoretical market structure with three necessary conditions: 1)Very Large Numbers, 2) Identical Products, 3) Freedom of Entry and Exit. Pure Competition

When the following conditions are added to Pure Competition – 4) knowledge by all buyers and all sellers of all conditions in the market, along with 5) perfect mobility of resources you get _____________. This doesn’t exist in the real world because no market has all 5 characteristics. Perfect Competition

The group of firms that produce identical or similar products Industry

Monopolistic Competition A market structure that has all of the conditions of pure competition except for identical products. Monopolistic Competition

Product Differentiation Real or perceived differences between competing products in the same industry.  Product Differentiation

Non-Price Competition To make their products stand out, monopolistic competitors try to make consumers aware of product differences. They usually do this the use of advertising, giveaways, or other promotions designed to convince buyers that the product is somehow unique or fundamentally better than its competitors’. Non-Price Competition

A market structure in which a few very large sellers dominate the industry. Oligopoly

A formal agreement to set specific prices or to otherwise behave in a cooperative manner. Collusion

Agreeing to charge the same or similar prices for a product that are higher than those determined under competition.. Price Fixing

A market structure with only one seller of a particular product. The Standard Oil Trust under John D. Rockefeller A market structure with only one seller of a particular product. Monopoly

Here the government plays very little role in controlling the development of an economy. Laissez-Faire

In this situation a single firm can produce the product more cheaply than any number of competing firms could. Natural Monopoly

Geographical Monopoly A monopoly based on the absence of other sellers in a certain geographic area.  Geographical Monopoly

Technological Monopoly A monopoly based on ownership or control of a manufacturing method, process, or other scientific method.  Technological Monopoly

A monopoly owned and operated by the government. Government Monopoly

This occurs whenever a flaw in the market system prevents an efficient allocation of resources.  Market Failure

A product that is collectively consumed by everyone, and whose use by one individual does not diminish the satisfaction or value available to others. Public Good

Spillover Effects or Externalities Uncompensated side effects that either benefit or harm a third party not involved in the activity that caused it.  Spillover Effects or Externalities

Cost-Benefit Analysis A strategy that evaluates the costs and benefits of various projects to find the one that has the highest ratio of benefits to costs. Cost-Benefit Analysis

Combinations of firms designed to restrict competition or control prices in a particular industry. Trusts

The practice of selling the same product to different consumers at different prices—if it substantially lessens competition. Price Discrimination

An FTC (Federal Trade Commission) ruling requiring a company to stop an unfair business practice, such as price fixing, which reduces or limits competition among firms. Cease and Desist Order

A situation in which the average cost of production falls as the firm gets larger. Economies of Scale

The requirement that businesses reveal certain information to the public. Public Disclosure

A legal document that pledges ownership of a home to a lender as security for repayment of borrowed money.   Mortgage

The situation in which a lender reclaims a home because the borrower has defaulted on the previously agreed-upon payments. Foreclosure