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An economic model that allows economists to examine competition among businesses in the same industry
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The ideal model of a market economy
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Econ Chapter 7/8

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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
 

 



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