Chapter 7: Market Structures and Market Failures 3/18/20

1. Patents and copyrights 2. Public franchises 3. Licenses

In what three ways are government-created monopolies formed?

Resource monopolies, government-created monopolies, and natural monopolies.

Legal monopolies fall into three broad categories. What are they?

1. Physical characteristics 2. Service 3. Location 4. Status and image

Nonprice competition typically focuses on four factors. What are they?

Private goods

These are goods and services that are sold in markets; distinct from public goods.

Public goods

These are goods and services that are used collectively and that no one can be excluded from using. These are not provided by markets. Examples include national defense and clean air.

Copyrights and patents

These are legal grants that are designed to protect and promote intellectual capital. They give inventors or creators the right to control the production, sale, and distribution of their work, thus creating a temporary monopoly over that work.

Economies of scale

These are the greater efficiency and cost savings that result from large-scale or mass production.

Transaction costs

These are the time and money consumers spend shopping for the best product at the best price.

Positive externality

This is a benefit of production or consumption that falls on someone other than the producer or consumer; a good side effect.

Technology spillover

This is a benefit that results when technical knowledge spreads from one company or individual to another, thereby promoting new innovations.

Nonrival in consumption

This is 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

This is 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

This is 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.

Nonexcludable

This is a characteristic of a good or service whose use cannot be denied to anyone; a feature of public goods.

Trust

This is a combination of firms; in the late 1800s, they worked to eliminate competition and control prices, but were later banned under anti_____ laws.

Public franchise

This is 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

This is a cost of production or consumption that falls on someone other than the producer or consumer; a bad side effect.

Externality

This is a cost or benefit that arises from production or consumption of a good or service that falls on someone other than the producer or the consumer.

Market share

This is a firm's proportion of total sales in a market.

Resource monopolies

This is a legal monopoly that exists when a single producer owns or controls a key natural resource. Other firms cannot enter the market because they do not have access to the resource.

License

This is a legal permit to operate a business or enter a market.

Natural monopoly

This is a market controlled by a single firm for reasons of efficiency; in this monopoly, one firm can provide a good or service at a lower cost than two or more competing firms.

Oligopoly

This is a market structure in which a few firms dominate the market and produce similar or identical goods. This structure is more competitive than a monopoly.

Monopoly

This is a market structure in which a single producer supplies a unique product that has no close substitutes. In an unregulated version of this, the producer sets the prices.

Perfect competition

This is a market structure in which many producers supply an identical product. This is the most efficient structure, with prices set by supply and demand.

Monopolistic competition

This is a market structure in which many producers supply similar but varied products. This structure is closest to perfect competition.

Price setter

This is a producer that can set a price for a product, rather than accepting the market price.

Price taker

This is a producer that has no influence over the price of a product; they must accept the market price.

Commodity

This is a product that is exactly the same no matter who produces it.

Market failure

This is a situation in which the market fails to allocate resources efficiently.

Brand

This is a trade name.

Government-created monopoly

This is a type of legal monopoly, formed when the government grants a single firm or individual the exclusive right to provide a good or service. The government does this when it considers such monopolies to be in the public interest.

Collusion

This is an arrangement in which producers cooperate on production levels and pricing; it is illegal in the United States.

Free-rider problem

This is an economic problem term for someone who enjoys the benefit of a good or service, such as roads or public schools, without paying for it; this becomes a problem when it leads to underproduction of that good or service

Price war

This is 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.

Barrier to entry

This is an obstacle that can restrict a producer's access to a market and limit competition.

Cartel

This is an organization of producers established to set production levels and prices for a product; they are illegal in the United States but do operate in global markets.

Imperfect competition

This is 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.

Antitrust law

This is legislation designed to limit the formation of monopolies or combinations of firms that act to restrict competition.

Market power

This is the ability of producers to influence prices.

Price leadership

This is the ability of the dominant firm in an oligopoly to set price levels that other firms then follow.

Product differentiation

This is the attempt by firms to distinguish their goods and services from those of other firms.

Start-up costs

This is the initial expense of launching a business.

Market structure

This is the organization of a market, based mainly on the degree of competition. There are four basic types.

Concentration ratio

This is the proportion of a market controlled by a fixed number of companies; for example, a four-firm this shows how much of a market is controlled by the four largest firms in that market.

Brand loyalty

This is the tendency to favor one company over all others in a market.

Nonprice competition

This is the use of product differentiation and advertising to attract customers.

1. Many producers 2. Differentiated products 3. Few barriers to entry 4. Some control over prices

What are the four basic characteristics of monopolistic competition?

Perfect competition, monopoly, oligopoly, and monopolistic competition.

What are the four basic market structures?

1. One producer 2. Unique product 3. High barriers to entry 4. Substantial control over prices

What are the four main characteristics of a monopoly?

1. Few producers 2. Similar products 3. High barriers to entry 4. Some control over prices

What are the four main characteristics of oligopolies?

1. Many producers and consumers 2. Identical products 3. Easy entry into the market 4. No control over prices

What are the four main characteristics of perfect competition?

1. Number of producers 2. Similarity of products 3. Ease of entry 4. Control over prices

What are the four main characteristics that define a market structure?

1. Price leadership 2. Collusion 3. Cartel formation

What are the three ways in which oligopolies attempt to control the market and behave like a monopoly?

Perfect competition

What is the most competitive basic market structure?