1. In a capitalist society, when is it ok for the government to regulate business?
Does new technology provide for the better good of all Americans?
Why do only a few people become extremely wealthy?
Can an individual be forgiven for misdoings if they give away a lot of money?

2. 2016
1 Walmart $482,130,000
2 Exxon Mobil $246,204,000
3 Apple $233,715,000
4 Berkshire Hathaway $210,821,000
5 McKesson $181,241,000
6 UnitedHealth Group $157,107,000
7 CVS Health $153,290,000
8 General Motors $152,356,000
9 Ford Motor $149,558,000
10 AT&T $146,801,000

3. Section 1 Perfect Competition
Ch 7 Market Structures
Section 1
Perfect Competition

4. Perfect Competition
A market structure in which a _____ number of firms all produce the same product
Perfect Competition assumes that the market is in __________.
There are four Conditions for Perfect Competition
Many buyers and sellers
Sellers offer _________
Buyers and sellers are well informed
Sellers are able to ____________ market
large
equilibrium
same product
enter & exit

5. Barriers to Entry Lead to __________ Competition
Imperfect
Barriers to entry may lead to imperfect competition…these include:
Start-up Costs
Technology

6. Section 2 Monopoly
A monopoly forms when ______ prevent firms from entering a market that has a single supplier.
The problem with monopolies is that they can take _________ of their market power and charge _________. Given the law of demand, this means that the quantity of goods sold is lower than in a market with more than one seller. For this reason, the US has outlawed some monopolistic practices.
barriers
advantage
high prices

7. Forming a Monopoly
Economies of scale: are characteristics that cause a producers average cost to ____ as production ____.
This is because the large initial fixed costs like the cost of the factory and machinery can be spread out among more and more goods as production rises.
drop
rises

8. Monopoly
Natural Monopoly: is a market that runs most efficiently when one large firm provides all of the output. If a second firm enters the market, competition will drive down the market price charged to customers and decrease the quantity each firm can sell. Not both can cover costs and one or both will go out of business. ex. Public utilities

9. A monopoly created by the ________.
Government Monopoly
A monopoly created by the ________.
Technological Monopoly: ex. _______
Thomas Edison obtained _____ patents in the US & had a monopoly in the motion picture industry. In 1917, the Supreme Court ruled it was illegal, dissolving Edison’s control.
government
Patents
1,093

10. Gov Monopoly cont.
Franchise: the right for one firm to sell a good or service within an __________: ex. Coke (at school), national parks
License: _________ grants firms the right to operate a business: ex. Radio/TV
Industrial Organizations: sometimes government allows companies to _____ number of firms in a market: ex. NFL, MLB
exclusive market
government
restrict

11. Price Discrimination
When monopolists can divide consumers into two or more groups and charge a different price.
Targeted Discounts
Airlines, Rebates, Senior Citizen, children free
Division of customers into groups based on how much they will pay for a good
Also done by any company with market power
The ability to control prices and market output

12. Limits of Price Discrimination
Market power (rare in competitive markets)
Distinct customer groups (______)
Difficult resale
FYI: Price Discrimination on an international scale is known as _______. When this occurs a firm charges ______ price in a foreign market than it does in its home country…sometimes even lower than ____________….Why would a firm engage in dumping? Is it legal or illegal?
elasticity
dumping
a lower
production cost

13. Section 3 Monopolistic Competition and Oligopoly
____ companies compete in an open market to sell products that are similar but _________.
The difference between perfect competition and monopolistic arise because monopolistically competitive firms sell goods that are similar enough to be ________ for one another but are not identical. Ex. Jeans
Many
not identical
substituted

14. Non-Price Competition (other than Price)
Physical characteristics
Shape, color, size, texture, taste
Location
Colleyville v. Garland 
Beverly Hills v. Bronx
Service Level
Whataburger v. Chili’s
Advertising, image, or status
Perception v. reality

15. Oligopoly
Market dominated by a ________________ firms. Four largest usually supply _____ of product.
___________ to entry – High start up cost
Ex. Cars, movie studios, airlines
Collusion : an agreement among members of an oligopoly to set prices and production levels
___________ (diamonds!) agree to sell at same price
_______: agreement by producers to coordinate prices and production…illegal in US (trusts are like cartels and they are also illegal)
few large profitable
70-80%
High Barriers
Price fixing
Cartels

16. Baby Formula!
In 1993 three major producers of baby formula paid $200million to retailers and wholesalers of their products. This was part of the settlement of lawsuits that had been brough against the three firms, claiming they had conspired to fix prices.

17. Section 4 Regulation and Deregulation
Breaks up monopolies (like Rockefellers’ Standard Oil & Carnegie’s US Steel)
_____________ that reduce competition and lead to higher prices (Grocery Store Scanners)
Preserve incentives
Blocks Mergers

18. Deregulation
Government _______ decides what role each company plays in a market and how much it can charge its customers
Trucking, banking, airlines, railroads, TV, cell phones
no longer