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Econ Chapter 7/8
Test
| Question | Answer |
|---|---|
| An economic model that allows economists to examine competition among businesses in the same industry | Market structure |
| The ideal model of a market economy | Perfect competition |
| 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 |
| A product that consumers consider identical in all essential features to other products in the same market | Standardized product |
| A business that cannot set the prices for its products but, instead, accepts the market price set by the interaction of supply and demand | Price taker |
| Occurs in markets that have few sellers or products that are not standardized | Imperfect competition |
| Come close to perfect competition | Corn.beef (agricultural products) |
| A market structure in which only one seller sells a product for which there are no close substitutes | Monopoly |
| A formal organization of sellers or producers that agree to act together to set prices and limit output, may function as a monopoly | Cartel |
| A business that does not have to consider competitors when setting its prices | Price maker |
| Something that hinders a business from entering a market | Barrier to entry |
| Examples of barriers to entry | Large size, government regulations, special resources, technology |
| Characteristics of a monopoly | Only one seller, control of prices, restricted/regulated market |
| A market situation in which the costs of production are lowest when only one firm provides output | Natural monopoly |
| A monopoly that exists because the government either owns and runs the business or authorizes only one product | Government monopoly |
| A monopoly that exists because the firm controls a manufacturing method, an invention, or a type of technology | Technological monopoly |
| A monopoly that exists because there are no other producers or sellers within a certain region | Geographic monopoly |
| Example of a natural monopoly | Water company |
| A situation in which the average cost of production falls as the producer grows larger | Economies of sale |
| Example of government monopoly | Postal service |
| Example of technological monopoly | Polaroid |
| A legal registration of an invention or a process that gives the inventor the exclusive property rights to that invention or process for a certain number of years | Patent |
| Example of geographic monopoly | Professional sports |
| One of the most common market structures in which many sellers offer similar, but not standardized, products | Monopolistic competition |
| Example of monopolistic competition | Printed t-shirts |
| Distinguishing features of monopolistic competition | Product differentiation and non-price competition |
| The attempt to distinguish a product from similar products | Product differentiation |
| Example of product differentiation | Gas mileage ratings, batteries |
| Using factors other than low price-such as style, service, advertising, or giveaways- to try to convince customers to buy one product rather than another | Nonprice competition |
| Major characteristics of monopolistic competition | Many buyers for many sellers, similar but differentiated products, limited lasting control over prices, and freedom to enter or exit the market |
| A moderated discussion with small groups of consumers | Focus group |
| A market structure in which only a few sellers offer a similar product, less competitive than monopolistic competition, a few large firms have a late market share and dominate the market | Oligopoly |
| Percent of total sales in a market | Market share |
| Examples of an oligopoly | Movie theaters, breakfast cereal |
| The expenses that a new business must pay to enter a market and begin selling to consumers | Start-up costs |
| Major characteristics of an oligopoly | Few sellers but many buyers, standardized or differentiated products, more control of prices, little freedom to enter/exit market |
| Controlling business behavior through a set of rules or laws to promote competition and protect consumers | Regulation |
| Laws that define monopolies and give government the power to control them and break them | Antitrust legislation |
| A group of firms combined for the purpose of reducing competition in an industry (similar to a cartel) | Trust |
| Keeps trusts from forming, one company combines with or purchases another to form a single firm | Merger |
| Businesses work together to set the prices of competing products | Price fixing |
| Example of price fixing | CDs, FTC ended the anticompetitive price |
| Competing businesses negotiate to divide up a market | Market allocation |
| Setting prices below cost so that smaller producers cannot afford to participate in a market | Predatory pricing |
| A ruling that requires a firm to stop an unfair business practice | Cease and desist order |
| Requires businesses to reveal product information to consumers | Public disclosure |
| Involves actions taken to reduce or remove government oversight and control of business | Deregulation |
| An enterprise that produces goods or provides services | Business organization |
| Most common type of business organization in the US, a business owned and managed by a single person | Sole proprietorship |
| Characteristic of a sole proprietorship, a situation in which a business ceases to exist if the owner dies, retires, or leaves the business for some other reason | Limited life |
| A business owner is responsible for all the losses, debts, and other claims against the business | Unlimited liability |
| Advantages of a sole proprietorship | Easy to open/close, few regulations, freedom and control, owner keeps profits |
| Disadvantages of sole proprietorships | Limited funds, limited life, unlimited liability |
| A business co-owned by two or more people, or "partners" who agree on how responsibilities, profits, and losses will be divided | Partnership |
| Most common type of partnership in which partners share responsibility for managing the business and each one is liable for all business debts and losses | General partnership |
| A partnership in which at least one partner is not involved in day-to-day running of business and is liable only for the funds he or she has invested | Limited partnership |
| A partnership in which all partners are limited partners and not responsible for the debts and other liabilities of other partners | Limited liability partnership |
| Examples of LLP | Medical partnerships, law firms, and accounting firms |
| Advantages of partnerships | Easy to open and close, few regulations, access to resources, joint decision making, specialization |
| Disadvantages of partnerships | Unlimited liability, potential for conflict, limited life |
| A business owned by individuals, called shareholders or stockholders | Corporation |
| Shares of ownership in the corporation | Stock |
| Part of the profit that the company pays out to stockholders | Dividend |
| A corporation that issues stocks that can be freely bought and sold | Public company |
| Retains control over who can buy or sell the stock | Private company |
| Contract the corporation issues that promises to repay borrowed money, plus interest, on a fixed schedule | Bond |
| Occurs in a corporation, business owner's liability for business debts and losses is limited | Limited liability |
| Continue to exist even after a change in ownership | Unlimited life |
| Advantages of corporations | Access to resources, Professional managers, limited inability, unlimited life |
| Disadvantages of corporations | Start-up cost and effort, heavy regulation, double taxation, loss of control |
| The joining of companies that offer the same or similar products or services | Vertical merger |
| The combining of companies involved in different steps of production or marketing of a product or service | Vertical merger |
| Results from a merger of companies that produce unrelated goods or services | Conglomerate |
| A larger corporation with branches in several companies | Multinational corporation |
| Example of a horizontal merger | Reebok and Adidas |
| Example of a vertical merger | Shell Oil and Texaco |
| A business made up of semi-independent businesses that all offer the same products or services | Franchise |
| An individual business that pays a fee to the parent company in return for the right to sell the company's product | Franchisee |
| A type of business operated for the shared benefit of the owners, who are also its costumers | Cooperative |
| An institution that acts like a business organization, but its purpose is usually to benefit society, not to make a profit | Nonprofit organization |
| Require some type of membership payment, keep prices low by purchasing goods in large volumes at a discount price | Consumer/purchasing co-op |
| Business organizations, such as credit unions, that offer their members a service | Service co-op |
| Mainly owned and operated by the producers of agricultural products, join together to ensure cheaper, more efficient processing | Producer co-op |
Created by:
AliRutherford