Chapter 7 - Competition, Market Structures, and the Role of Government

Federal Trade Commission (FTC) Act

(1914) Gave federal government power to issue cease and desist order → stop an unfair business practice Enhanced power to the Clayton Act

Robinson-Patman Act

(1936) Outlawed special discounts to certain customers, while denying them to others

what are some examples that are regulated by government

- Public utilities (water/electric/cable) by state/municipal -Banks regulated by states/Federal Reserve

what is the goal of government regulation

- to set prices as if there were competition - Creation of natural monopolies, regulated so they cannot take advantage of the consumer

what did the Clayton Antitrust Act do

-Gave the Federal gov't greater power against monopolies -(1914) Outlawed price discrimination → the practice of charging customers different prices for the same product -Could lessen competition

SEC(Securities and Exchange Commission)

Stock regulation

Externality

an economic side effect that affects an uninvolved third party

Franchise

companies are given the right to operate in a certain area without competition

Market failure

condition that causes a competitive market to fail

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

education and roads

patent

exclusive right to manufacture, use, or sell any new any useful art, machine, manufacture, or composition of matter, or any new and useful improvement thereof

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

gave federal government more power over monopolies and outlawed price discrimination

copyright

gives authors or artists exclusive rights to publish, sell, or reproduce their work for their lifetime, plus 50 years

Public goods

goods or services whose benefits are available to everyone and are paid for collectively

Trust

illegal combination of corporations or companies organized to hinder competition

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

inadequate information and public goods

Oligopoly

market structure in which a few sellers dominate the industry

Geographic monopoly

market structure in which one firm has a monopoly in a geographic area

Natural monopoly

market structure where average costs of production are lowest when a single firm exists

Monopoly

market structure with a single seller of a particular product

Perfect competition

market structure with many well-informed and independent buyers and sellers who exchange identical products

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

monopolies and trusts

what is the price maker

monopoly

Technological monopoly

monopoly based on a firm's ownership or control of a production method, process, or other scientific advance

Market structure

nature and degree of competition among firms in the same industry

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

prevent market failures and businesses keep trade secrets

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

protecting property, enforcing contracts, settling disputes, protecting firm against foreign competition

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

public utilities

Product differentiation

real or imagined differences between competing products in the same industry

What government actions led to a modification of free enterprise?

regulatory agencies to protect consumers

What is the purpose of public disclosure?

reveal information to public

Cease and desist order

ruling requiring a company to stop an unfair business practice that reduces or limits competition

Nonprice competition

sales strategy focusing on a product's appearance, quality, or design rather than its price

Define market structure.

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

Price discrimination

the practice of selling the same product at different prices to different buyers

what are some public goods

things society values - education, libraries, roads - usually do not provide financial gain

what was the purpose of the Sherman Antitrust Act

to protect trade & commerce against unlawful restraint & monopoly" First significant law against monopolies & trusts ex:Standard Oil, 1911 ( rockefeller)

what was the purpose of the Sherman Antitrust Act?

to protect trade and commerce against unlawful restraint and monopoly

what role does the government play in economics

-is limited to protecting property -enforcing contracts -settling disputes and protecting firms against foreign competition

what did the antitrust Legislation do

-restricted monopolies date back to the late 1800's - Designed to prevent market failures due to inadequate competition

5 conditions of perfect competition

1) large numbers of buyers and sellers exist 2) buyers and sellers deal in identical products 3) each buyer and seller act independently 4) buyers and sellers are well-informed about products and prices 5) buyers and sellers are free to enter into, conduct, or leave businesses

3 imperfect competition market structures

1) monopolistic competition 2) oligopoly 3) monopoly

4 different types of monopolies

1) natural monopoly 2) geographic monopoly 3) technological monopoly 4) government monopoly

Over time, mergers and acquisitions have had several consequences. One is inefficient resource allocation because 1_____________ tends to reduce the efficient use of scarce resources. 2_____________ may also enable a business to influence politicians in order to get special treatment that enriches its managers and owners. To allocate resources efficiently, consumers, businesspeople, and government officials must have 3_____________ about market conditions. Some information is harder to find than other kinds, and that can lead to a(n) 4____________ . A difficult problem in any economy is resource immobility, when land, capital, labor, and entrepreneurs do not move to markets in which the returns are the highest and sometimes resources remain 5________________ . Another form of 6________________ shows up in the form of 7______________ those products that are collectively consumed by everyone and whose use by one individual does not diminish the satisfaction or value received by others. They are usually provided by the government. Many activities generate some kind of 8______________________ or unintended side effect that either benefits or harms a third party not involved in the activity that caused it. A(n) 9__________________ is the harm, cost, or inconvenience suffered by a third party because of actions by others. A(n) 10________________ is a benefit received by someone who was not involved in the activity that generated the benefit. A(n) 11_______________________ is a(n) 12____ because its costs and benefits are not reflected in the market prices that buyers and sellers pay.The problem with externalities is that they 13__________________ the decisions made by consumers and producers. Pollution is an example of a(n) 14__________________ . Forcing firms to address pollution problems increases the firms' production costs, resulting the higher prices for the consumer. Education is an example of a(n) 15_____________________ . Communities and their economies benefit when their people are better educated.

1. inadequate competition 2. inadequate competition 3. adequate information 4. market failure 5. unemployed 6. market failure 7. public goods 8. externality 9. negative externality 10. positive externality 11. externality 12. market failure 13. disort 14. negative externality 15. positive externality

Indirect Disclosure

Govt support of Internet e-commerce taxes Govt documents online

Profit Maximization

In a perfectly competitive market, S & D set the equilibrium price

FDA(Food and Drug Administration)

Labels on food

Federal Reserve System

Member bank regulation

what is the US economy

Modified Free Enterprise

Positive externality

a beneficial side effect that affects an uninvolved third party

Negative externality

a harmful side effect that affects an uninvolved third party

Imperfect competition

a market structure that does not meet all condition of perfect competition

Monopolistic competition

a market structure that meets all conditions of perfect competition except identical products

Government monopoly

a monopoly owned and operated by the government

Laissez-faire

a philosophy that government should not interfere with business activities

Public disclosure

a requirement that a business reveal information about its products or its operations to the public

Economics of scale

a situation in which the average cost of production fails as a firm gets larger

who wrote the wealth of nations

adam smith

Collusion

agreement, usually illegal, among producers to fix prices, limit output, or divide markets

Price-fixing

agreement, usually illegal, by firms to charge the same price for a product

Under what conditions are monopolies acceptable?

when regulated