1. Competition and Market Structures

2. Jump Start Chapter 7 section 1
Perfect competition is characterized by all of the following EXCEPT:
A smaller number of buyers and sellers
Well informed buyers and sellers
Identical products
Independent buyers and sellers
A monopoly based on the absence of other sellers in a certain location is called
An oligopoly
A natural monopoly
A geographic monopoly
Economies of scale
Monopolistic competition is separated from pure competition by:
Collusion
Profit maximization
Product differentiation
Imperfect competition
Oligopoly is a market structure with a great deal of
Competition among firms
Interdependence among firms
Independence among firms
Profits among firms
A monopoly’s prices are determined by:
competing firms
market equilibrium
perfect competition
the monopoly

3. Perfect Competition

4. Market Structure
Characterized by the degree of competition among business in the same industry
Types of Competition:
Pure Competition
Monopolistic Competition
Oligopoly
Monopoly

5. Perfect (Pure) Competition
When a large number of buyers and sellers exchange identical products under five conditions
There should be a large number of buyers and sellers
The products should be identical
Buyers and sellers should act independently
Buyers and sellers should be well-informed
Buyers and sellers should be free to enter, conduct, or get out of business

6. Perfect Competition Under a Perfect Competition Imperfect Competition
Supply and demand set the equilibrium price
Each firms sets a level of output that will maximize its profits at that price
Imperfect Competition
Refers to market structures that lack one or more of the five conditions

7. Monopolistic Competition
Meets all conditions of perfect competition except for identical products
Use product differentiation
Real or imagined differences between competing products in the same industry
Use non-price competition
Advertising, giveaways, promotional campaigns
Sell within a narrow price range to try to raise the price = profit maximization

8. Oligopoly A few large businesses dominate an industry
When one business makes a move, the others usually follow
Ex: a price war…cuts in airline ticket
Sometimes results in collusion or price-fixing which is illegal
Collusion: formal agreement to set prices
Price-Fixing: charge the same

9. Monopoly One seller of a product that has no close substitutes
Natural Monopoly
Geographic Monopoly
Technological Monopoly
Government Monopoly

10. Natural Monopoly
More efficient for only one business to produce the goods
Ex: Marta, Water co.
Government gives permission

11. Geographic Monopoly No other business chooses to compete in that area
Ex: small town drugstore

12. Technological Monopoly
Results from new discoveries and inventions.
The government grants these monopolies through the issue of patents and copyrights
Patents: inventions
Copyrights: publish

13. Government Monopoly
Involves products people need that private industry might not adequately provide

14. Vocabulary Perfect competition Non-price competition Oligopoly
Collusion
Economies of scale
Market structure in which a few very large sellers dominate the industry
Market situation in which a large number of well-informed and independent buyers and sellers exchange identical products
The use of advertising, giveaways, and other promotional campaigns to convince buyers one product is better than another
A situation in which the average cost of production fails as the firm gets larger
A formal agreement to set prices or to otherwise behave in a cooperative manner

15. Jump Start Chapter 7 section 1
Perfect competition is characterized by all of the following ECCEPT:
A smaller number of buyers and sellers
Well informed buyers and sellers
Identical products
Independent buyers and sellers
A monopoly based on the absence of other sellers in a certain location is called
An oligopoly
A natural monopoly
A geographic monopoly
Economies of scale
Monopolistic competition is separated from pure competition by:
Collusion
Profit maximization
Product differentiation
Imperfect competition
Oligopoly is a market structure with a great deal of
Competition among firms
Interdependence among firms
Independence among firms
Profits among firms
A monopoly’s prices are determined by:
competing firms
market equilibrium
perfect competition
the monopoly

16. Market Failures
Section 2

17. Market Failures Four conditions needed
Adequate competition must exist
Buyers and sellers must be well-informed; opportunities in the market
Resources must be free to move from one industry to another
Prices must reasonably reflect the cost of production, including rewards
Failure occurs when these are altered

18. Jump Start Chapter 7 section 2
all of the following may lead to a market failure EXCEPT
resource mobility
inadequate competition
insufficient information
prices do not reflect the cost of production
Which of the following is NOT a public good?
Community park
Fire department
Armed forces
Movie theater
What is the result of inadequate competition?
The development of monopoly
Artificial shortages and higher prices
Excessive political influence by businesses
All of the above
Positive and Negative externalities are called market failures because
They cause imperfect competition
They lead to higher prices
Their cost and benefits are not reflected in the market prices paid by buyers and sellers
They provide public goods
Which of the following is an example of resource mobility?
An engineer asking for a higher wage
An aircraft factory laying off engineers
An engineer taking a job at a different factory
An aircraft factory selling its products

19. Inadequate Competition
Decrease b/c of mergers and acquisitions
Inefficient resource allocation = no incentive to use resources carefully
Reduced output = monopoly can retain high prices by limiting supply
Large business can exert its economic power over politics

20. Inadequate Competition
Failures on the Demand side are harder to correct than failures on the Supply side
Supply side:
No competition exists if a monopolist dominates
Demand Side
Buyers can be found but….how many want hydroelectric dams, space shuttles, etc…

21. Inadequate Information
Consumers, businesspeople, and government official must have adequate information about market conditions
Information
Easy to find in want ads, sale prices in newspaper
If difficult to find = market failure

22. Resource Immobility
Occurs when land, capital, labor, and entrepreneurs stay with in a market
Returns are slow
Remain unemployed
Resources will not or cannot move to a better market
The existing market does not always function efficiently
Large auto assembly plant, steel mill, or mines closes leaving hundreds unemployed
Not all can find new jobs
Not be able to sell homes
When resources are immobile or refuse to move, markets do not always function effciently

23. Externalities Unintended side effects Negative Positive
Harm, cost, or inconveniences suffered by a third party
Positive
Benefits received by someone who had nothing to do with the activity that created the benefit
Market failures
Market prices that buyers and sellers pay do not reflect the cost and/or benefits of the action
Negative: noise from the expansion of the airport
Positive: people across town benefit from additional jobs generated by the airport expansion
Market failure: does the airline or the air traveler compensate the homeowner for the diminished value of thhe property?

24. Public Goods Products that everyone consumes
Use by one individual does not diminish the satisfaction or value to others
Uncrowded highways, flood control measures, national defense, police and fire protection
Market is successful in satisfying individual wants and needs; fails to satisfy them on a collective basis
Government usually has to supply them

25. Vocabulary Review Market failure Externality Negative externality
Positive externality
Public goods
An unintended side effect that either benefits or harms an uninvolved third party
An unwanted harm, cost, or inconvenience suffered by a third party because of actions by others
Products that are collectively consumed by everyone
A benefit received by third party that had nothing to do with the activity that generated the benefit
Occurs when any one of the four conditions necessary for a competitive free enterprise economy is significantly altered

26. Jump Start Chapter 7 section 2
all of the following may lead to a market failure EXCEPT
resource mobility
inadequate competition
insufficient information
prices do not reflect the cost of production
Which of the following is NOT a public good?
Community park
Fire department
Armed forces
Movie theater
What is the result of inadequate competition?
The development of monopoly
Artificial shortages and higher prices
Excessive political influence by businesses
All of the above
Positive and Negative externalities are called market failures because
They cause imperfect competition
They lead to higher prices
Their cost and benefits are not reflected in the market prices paid by buyers and sellers
They provide public goods
Which of the following is an example of resource mobility?
An engineer asking for a higher wage
An aircraft factory laying off engineers
An engineer taking a job at a different factory
An aircraft factory selling its products

27. The Role of Government

28. Jump Start Chapter 7 section 3
Which of the following antitrust laws was enacted first?
Federal Trade Commission Act
Clayton Antitrust Act
Sherman Antitrust Act
Robinson-Patman Act
The federal law that first outlawed price discrimination is the
Public disclosures supports competition by
Providing buyers and sellers with information
Revealing competitive trade secrets
Converting private businesses into government agencies
Concentrating information in the hands of the government
Which of the following is most likely be subject to government monopoly regulations?
A computer software company
A large oil company
A local restaurant
A local cable company
The government takes part in the United States economy to
Encourage competition and fair play
Prevent monopolies and reduce cost of imperfect competition
Regulate industries in which monopolies serve the public good
All of the above

29. Antitrust Legislation
Trust: legally formed combinations of corporations or companies
Antitrust laws prevent or break up monopolies, preventing failures due to inadequate competition

30. Federal Trade Commission
Competition in the market is protected by the government through antitrust legislation and the creation of the Federal Trade Commission.
Federal Trade Commission: has the authority to stop any unfair business practices that reduce or limit competition

31. Antitrust Legislation
1890: Sherman Antitrust Act:1st law against monopolies
1914: Clayton Antitrust Act: outlawed price discrimination
1914: The Federal Trade Commission: empowered to issues cease and desist orders, requiring companies to stop unfair business practices
1936: Robinson-Patman Act: outlawed special discounts to some customers

32. Government Regulation
Goal is to set the same level price and service that would exist if a monopolistic business existed under competition
Use: tax system to regulate businesses with negative externalities
Prevents market failures

33. Public Disclosure Requires businesses to reveal information about
Products
Services to Public:
Banks, corporations, lending institutions
Provides information to prevent market failures
“Truth in Advertising” laws (false claims)

34. Indirect Disclosure Government support of the internet
Availability of Gov’t documents
Businesses post information

35. Modified Free Enterprise
Government intervention to encourage
competition,
Prevent monopolies
Regulate industry
Fulfill the need for public goods

36. Modified Free Enterprise
Today’s US Economy
Mixed of different market structures
Different business organization
Varying degrees of government regulation

37. Vocabulary Review Trust Clayton Antitrust Act Price Discrimination
Robinson-Patman
Act
5. Cease and desist
order
Strengthened previous legislation regarding price discrimination
Built on Sherman Antitrust Act by extending government powers against monopolies
An FTC ruling requiring a company to stop an unfair business practice
Legally formed combinations of corporations or companies
Practice of charging customers different prices for the same product

38. Jump Start Chapter 7 section 3
Which of the following antitrust laws was enacted first?
Federal Trade Commission Act
Clayton Antitrust Act
Sherman Antitrust Act
Robinson-Patman Act
The federal law that first outlawed price discrimination is the
Public disclosures supports competition by
Providing buyers and sellers with information
Revealing competitive trade secrets
Converting private businesses into government agencies
Concentrating information in the hands of the government
Which of the following is most likely be subject to government monopoly regulations?
A computer software company
A large oil company
A local restaurant
A local cable company
The government takes part in the United States economy to
Encourage competition and fair play
Prevent monopolies and reduce cost of imperfect competition
Regulate industries in which monopolies serve the public good
All of the above