Economics Chapter 7

What is one example of how local or state government allows and regulates a monopoly?

Cable tv and water, heath care, & electric utilities --> they will raise rates

Formal agreement between firms to set prices or to behave in a cooperative manner

Collusion

Situation in which the average cost of production falls as the firm gets larger, thereby justifying the firm to be as large as is necessary to reduce production costs

Economies of scale

Monopoly based on ownership or control of a manufacturing method, process or other scientific advancement

Technological monopoly

What is the advantage to the public of truth-in-advertising laws?

They know the information, they cant be lied to, companies cant give false information

What is the purpose of public disclosure?

To give adequate information to consumers, companies are fair

What was the purpose of the Clayton Antitrust Act of 1914, and what practice did it outlaw?

To give the government more power over monopolies, price discrimination

What was the purpose of the Sherman Antitrust Act?

To protect trade and commerce against unlawful restraint and monopoly

Combination of corporations or companies organized to hinder competition

Trust

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

Externality

What are two examples of needed public goods that are provided by the government?

Good road and highways, museums, libraries, and education

A market structure that lacks one or more of the conditions of the perfect competition

Imperfect competition

What are two market failures the government is able to correct?

Inadequate information and public goods

What government actions led to a modification of free enterprise?

Involved in certain aspects of our economy

Philosophy that government should not interfere with business activities

Laissez-faire

Usually involves inadequate competition, inadequate information, resource immobility, public goods, or externalities

Market failure

The nature and degree of competition among firms in the same industry

Market structure

What was the antitrust legislation of the the late 1800's trying to restrict?

Monopolies and trusts

A market structure that has all the conditions of perfect competition expect for identical products

Monopolistic competition

List the three imperfect competition market structures.

Monopolistic competition Oligopoly Monopoly

A market structure with only one seller of a particular product

Monopoly

What are the five major conditions that characterize perfectly competitive markets.

Must be a large number of buyers and sellers-->no one seller can occupy the market Buyers and sellers deal in identical products--> no differences in the product Each buyer and seller act independently--> ensure pure competition taking place Buyers and sellers are reasonably well-informed about products and prices--> match prices Buyers and sellers are free to enter into, conduct or get out of business--> if they don't want to do it, they don't have to

Under what conditions are monopolies acceptable?

Natural monopolies

Name and describe the four different types of monopolies.

Natural--> public utility Geographic--> absence of sellers in a geographic area Technological--> ownership and control of manufacturing methods or process Government--> involving products that private industries cannot adequately provide

Define market structures.

Nature and degree of competition among firms doing business in the same industry

Market structure in which a few large sellers dominate the industry

Oligopoly

A theoretical idea in which a large number of well-informed independent buyers and seller exchange identical products

Perfect competition

A form of collusion in which firms agree to charge the same or similar prices for a product

Price fixing

What is the role of the government under Adam Smith's laissez-fair philosophy?

Protect property, enforce contracts, settle disputes and protect firms against foreign competition