Econ Chapter 7 Quiz

Things that lead to market failure?

Not enough competition, not enough information, resources that can't, or won't move, too few public goods and externalities/spillover effects.

Price Discrimination

Practice of charging different customers different prices for the same product.

Pure Competition

A theoretical market structure that requires three major conditions: very large numbers of buyers and sellers, identical products, and freedom of entry and exit. Ex. agricultural markets, stock market, truck farming - No advertising, no influence over price

Monopolistic Competition

All conditions of pure competition, except there is product differentiation. Ex. gas stations, women's clothing, cereal, smartphones - Little influence over price, lots of advertising, easy entry into market

Positive Externality

An unreimbursed benefit received by someone who was not involved in the activity that generated the benefit.

Collusion

Illegal agreement among producers to fix prices, limit output, divide markets, or otherwise agree to reduce competition.

Why does the government regulate some aspects of the economy?

Manages competition, protects consumers, resources and the environment, issues recalls, etc.

Market Structures

Market classification according to number and size of firms, type of product, and type of competition,; nature and degree of competition among firms in the same industry.

Types of monopolies

Natural (average costs of production are lowest when all output is produced by a single firm); Geographic (monopoly because of location or the small size of the market); Technological (owning or controlling a manufacturing method, process, or other scientific advantage); Government (created and/or owned by the government).

Public disclosure

Requirement forcing a business to reveal information about its products or its operations to the public.

What were some of the first federal laws that prevented price discrimination?

The Clayton Anti-trust act (1914) outlawed price discrimination; the Federal Trade Commission Act enforced this (1914).

What are some of the first antitrust laws?

The Sherman Act, Clayton Antitrust Act, Federal Trade Commission Act, Robinson Patman Act, and Clayton Act.

Negative Externality

The uncompensated harm, cost, or inconvenience suffered by a third party because of other's actions

Examples of resource mobility

When land, labor capital and entrepreneurs will or will not move due to higher or lower returns in their certain markets.

Clayton Antitrust Act

1914 act designed to strengthen the Sherman Antitrust Act of 1890; certain activities previously committed by big businesses, such as not allowing unions in factories and not allowing strikes, were declared illegal.

Market Failure

Conditions where any of the requirements for a competitive market - usually adequate competition, knowledge of prices and opportunities, mobility of resources, and competitive profits - leads to an inefficient allocation of resources characterized by too much or too little being produced.

Public Good

Economic products that are consumed collectively, such as highways, national defense, police and fire protection.

Monopoly

Market structure characterized by a single producer. Ex. water and gas industries - Total influence over price, no product differentiation, impossible entry into market, no advertising

Cease and Desist Order

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

Trusts

Illegal combinations of corporations or companies organized to suppress competition

Results of inadequate competition

Larger and fewer firms dominate an industry, decreased efficiency in the use of scarce resources, enables businesses to influence politicians for special treatment (essentially buyer or seller can have more influence over the market price).

Oligopoly

Market structure in which a few large sellers dominate the market and have the ability to affect prices in the industry. Ex. phone companies, fast food, automobiles - Some influence over price, some product differentiation (name brands), some advertising and difficult entry into market

Robinson Patman Act

Passed in 1936, it aims to prevent businesses from selling the same product to different people at different prices (price discrimination); this act strengthened the Clayton Act