Unit 4 Market Structures

Negative externality example

2nd hand smoke beer factories Driving while texting

Signs of a healthy labor market

Check Chart

Pigouvian Tax

a tax on the polluter to correct negative externality fixed by incentives making company fix, not the gov't

Cyclical unemployment

contractions in the economy recession time period being 'let go'

Coase Theorem Example

one neighbor is too loud (700) the other wishes for peace and quiet (1000) neighbor 1000 offers 800 to other neighbor BOTH WOULD BENEFIT SO YES

Private goods CHART

rival in consumption, excludable

Oligopoly

A market structure in which a few large firms dominate a market

Monopoly

A market structure with only one seller price maker

Subsidies

Financial support from the government lower the price and increase the quanitity

Recession (Traditional)

GDP declines for 2 quarters in a row, 6 consecutive months

What has the greatest market power?

Monopoly

Info on Perfect Competition

Price taker Large number of firms Low barriers to entry Identical Products Unlimited # of producers/consumers MILK

Underemployed rate

Unemployed plus two limitation

Perfect Competition

a market structure in which a large number of firms all produce the same product price taker

Monopolistic Competition

a market structure in which many firms sell products that are similar but not identical

Rival in consumption (a good)

a use by one person diminishes the use by another person BOX OF CANDY

Non-rival in consumption

a use by one person does not diminish the use of another BEACH

How to prevent Market Failures

adequate competition buyers + sellers are well informed resources are free to move to + from different industries prices reflect the cost of production

Inflation

average of all rising prices

Real income

base year value

Base Year VS Current Year

benchmark year/reference vs. the now/situation

Positive Externalities

benefit received by someone who had nothing to do with the activity that generated the benefit education example - loans, grants, etc.

Exludable

can prevent someone from doing/attending SIX FLAGS TICKET

Private goods

can prevent use but hard to share the more I use, the less for someone else

Not-excludable

can't prevent someone from attending BEACH, PUBLIC SCHOOL

Structural unemployment

changes in the economy that eliminates some jobs and creates new ones unemployment occurs for a longer period of time and requires new skills to be learned most-likely COMPUTER EXAMPLE

Public goods

collectively consumed value to everyone FIREWORKS

CPI

consumer price index

Social Cost

cost to all members of society

Private Cost

cost to you the decision maker/producer personal costs

Nominal Income

current market value

Deflation

decrease in prices

Causes of Inflation/Consumer Price Index

demand PULL deficit spending wage PUSH spiral of wages and prices excessive monetary growth

Info on Monopoly

determines price single firm no close substitutes some advertising high barriers to entry DIAMOND COMPANY

Limitations on unemployment rate

does not include... part-time workers who wish for a full-time job discouraged workers

Real GDP

effects on inflation taken out

Common resource

everyone has access but may be overused FISHING IN A POND

Coase Theorem

externalities may be privately solved all are better off and the outcome is efficient privately solved

Expansion

growth of GDP

Labor Force

individuals who are working/individuals not working but looking for work

Info on Monopolistic Competition

large number of firms some price influence differentiated products from each other - similar Not perfect substitutes no barriers to entry depends on advertising RESTAURANTS

Artificially scarce (club goods)

may prevent use but one person use does not diminish another's use UNCONGESTED TOLL ROAD

Market Structure

nature of competition among firms operating in the same industry

Club Goods CHART

non-rival in consumption, excludable

Public Goods CHART

non-rival in consumption, non-excludable

Pigouvian Subsidy

payment to encourage activities that generate positive externalities (FLU SHOTS)

TYPES OF MARKET STRUCTURES

perfect competition, monopolistic competition, oligopoly, monopoly

Seasonal unemployment

periodic trends short time period

Product Differentiation

real or imagined differences between competing products in the same industry

Business Cycle Graph

recurrent swings in real GDP PEAK CONTRACTION TROUGH EXPANSION PEAK...

Positive externality example

remodeling a house to make the neighborhood better and richer

Common Resource CHART

rival in consumption, non-excludable

Recession (NATIONAL bureau of economic research)

significant decline in economic activity spread across the economy, lasting for more than a few months and is more visible take their time declaring a recession

Info on Oligopoly

small number of firms owns a majority of market share - can determine price but each company relies on each other identical or differentiable products advertising is useful high barriers to entry AIRPLANE COMPANY

Goal of inflation

stable prices NOT low prices

Negative Externality

the harm, cost, or inconvenience suffered by a third party because of actions by others

Unemployment rate + GOAL OF UNEMPLOYMENT

the ratio of unemployed individuals divided by the total number of persons in the civilian labor force expressed as a percentage GOAL = 4.5%

Externality

unintended side effect that either benefits or harms a third party not involved in the activity that caused it

External Cost

value of the negative impact on bystanders

Free-Rider

with no incentive to pay some obtain the goods for free difficult to force everyone to pay their fair share

Frictional unemployment

workers between jobs with transferrable skills