Chapter 7: Market Structures and Failures
public franchise
a contract issued by a government entity that gives a firm the sole right to provide a good or service in a certain area, such as a national park
negative externality
a cost that falls on someone other than the producer or consumer.
natural monopoly
a market controlled by a single firm for reasons of efficiency; in a natural monopoly, one firm can provide a good or service at a lower cost than two or more competing firms
oligopoly
a market or an industry dominated by just a few firms that produce similar or identical products
perfect competition
a market structure in which many producers supply an identical product and no single producer can influence its price; in such a market, prices are set by supply and demand
monopolistic competition
a market structure in which many producers supply similar but varied products
price setters
a producer that can set a price for a product, rather than accepting the market price
externality
a side effect of production or consumption that has consequences for people other than the producer or consumer
economies of scale
he greater efficiency and cost savings that result from large-scale or mass production
antitrust laws
legislation designed to limit the formation of monopolies or combinations of firms that act to restrict competition
Nonprice competition typically focuses on four factors: physical characteristics, service, status and image, and
location.
market failures
market failure: a situation in which the market fails to allocate resources efficiently
Which market structure do we encounter most often in our daily lives?
monopolistic competition
The most extreme version of imperfect competition is
monopoly.
Public goods are
nonexcludable and nonrival in consumption.
Barriers to entry are
obstacles that can restrict access to a market and limit competition.
monopoly
one producer, a unique product
The most competitive market structure is
perfect competition.
Oligopolies may sometimes act like monopolies when they use cooperative pricing. Which form of cooperative pricing is legal in the United States?
price leadership
price takers
price taker: a producer that has no influence over the price of a product; price takers must accept the market price
market power
the ability of producers to influence prices
product differentiation
the attempt by firms to distinguish their goods and services from those of other firms
Market structure
the organization of a market, based mainly on the degree of competition; there are four basic market structures: perfect competition, monopolistic competition, oligopoly, and monopoly
nonprice competition
the use of product differentiation and advertising to attract customers
Collusion
when producers get together and make agreements on production levels and pricing
positive externality
a benefit that falls on someone other than the producer or consumer.
nonrival in consumption
a characteristic of a good or service that can be used or consumed by more than one person at the same time; a feature of public goods
rival in consumption
a characteristic of a good or service that cannot be used or consumed by more than one person at the same time; a feature of private goods
excludable
a characteristic of a good or service whose use can be denied to those who do not pay for it; a feature of private goods
A market failure occurs when
goods and services are not allocated in the most efficient way.
price war
an intense competition among rival firms in an oligopoly in which they successively lower prices to increase sales and win a larger share of the market
cartel
an organization of producers established to set production and price levels for a product
imperfect competition
any market structure in which producers have some control over the price of their products; in such a market, prices are no longer set by supply and demand
nonexcludable
characteristic of a good or service whose use cannot be denied to anyone; a feature of public goods
trusts
combinations of firms, that worked together to eliminate competition and control prices.
Nearly perfect markets are beneficial because producers are as efficient as possible and
consumers do not pay more for a product than it is worth.
Economists define market structure according to four main characteristics: number of producers, similarity of products, ease of entry, and
control over prices.
Public goods include
fire and police services.