Economics Chapter 7 Flashcards

Market Structures

• Perfect Competition: Characterized by many firms producing identical products; no single seller controls market supply or prices.
• Imperfect Competition: Exists when market conditions do not meet the criteria of perfect competition.
• Monopoly: A market structure where one seller dominates and controls the market completely.
• Monopolistic Competition: Involves many companies selling products that are similar but slightly different, allowing for some level of market power.
• Oligopoly: Dominated by a few large firms, leading to limited competition and collaborative behaviors among those firms.

Key Economic Concepts

• Commodity: Standardized product that is identical regardless of the producer (e.g., milk, petroleum).
• Barriers to Entry: Factors that hinder new firms from entering a market, impacting competition levels.
• Economies of Scale: Decrease in average production costs per unit as output increases, influencing competitive pricing.

Market Dynamics

• Natural Monopoly: Efficient market characterized by a single large firm providing all output, minimizing costs.
• Government Monopoly: A monopoly established by governmental authority, often to control essential services.

Intellectual Property and Business Rights

• Patent: Exclusive rights granted to inventors for a new product for a specific duration, protecting intellectual property.
• Franchise: Agreement allowing a single firm to market its products in a specified area under a unified brand.

Pricing Strategies and Competition

• Price Discrimination: Segmenting consumers based on their willingness to pay, maximizing revenue for firms.
• Market Power: A company’s ability to influence prices and output levels in the market.
• Nonprice Competition: Attracting customers through quality, service, or location rather than through lower prices.

Anti-competitive Practices

• Collusion: Illegal coordination among firms to manipulate market conditions (prices, supply).
• Price Fixing: Agreement among competitors to set a single price, undermining free market competition.
• Cartel: Formal collaboration among producers to control prices and production levels.
• Predatory Pricing: Temporarily pricing products below cost to eliminate competition from the market.

Regulatory Framework

• Antitrust Laws: Legislation aimed at fostering competition and preventing monopolistic practices in markets.
• Deregulation: The reduction or elimination of government rules controlling industry activities, encouraging competition.

Business Operations

• Startup Costs: Initial expenses faced by new businesses before they can begin operations.
• License: Official permission issued by the government allowing individuals or companies to operate a business.

Corporate Strategies

• Merger: The combination of two or more companies into a single entity, which can redistribute market power.
• Trust: An illegal arrangement among companies to stifle competition, akin to cartel behavior.