Podcast
Questions and Answers
What is the economy of scale?
What is the economy of scale?
Business principle that buying materials in large quantities reduces basic costs.
Who could take advantage of economy of scale?
Who could take advantage of economy of scale?
Only big companies, since only they had enough capital to buy such large quantities of materials.
What did economy of scale allow big companies to do?
What did economy of scale allow big companies to do?
Produce goods as cheaply as possible, then lower their prices to gain market share.
What happened when there were too many competing companies in a market?
What happened when there were too many competing companies in a market?
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What was a pool?
What was a pool?
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Were pools successful?
Were pools successful?
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What was a trust?
What was a trust?
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Why were trusts created?
Why were trusts created?
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What did the period of the 1880s and 1890s produce?
What did the period of the 1880s and 1890s produce?
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Give an example of an industrial monopoly created in that era.
Give an example of an industrial monopoly created in that era.
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What did Standard Oil Company control?
What did Standard Oil Company control?
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What did these monopolies lead to?
What did these monopolies lead to?
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What was the Interstate Commerce Act of 1887?
What was the Interstate Commerce Act of 1887?
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Was Interstate Commerce Commission successful?
Was Interstate Commerce Commission successful?
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What was the Sherman Antitrust Act of 1890?
What was the Sherman Antitrust Act of 1890?
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Was the Sherman Antitrust Act needed?
Was the Sherman Antitrust Act needed?
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What was the Sherman Antitrust Act intended to do?
What was the Sherman Antitrust Act intended to do?
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Did the Sherman Antitrust Act accomplish what was intended?
Did the Sherman Antitrust Act accomplish what was intended?
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If you were in charge of a small competitive company, what methods would you use to attract more business?
If you were in charge of a small competitive company, what methods would you use to attract more business?
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Study Notes
Economy of Scale
- Refers to the business principle where purchasing materials in bulk reduces overall costs.
- Benefits primarily accessible to larger companies with sufficient capital to buy materials at scale.
- Enables big companies to minimize production costs, subsequently lowering prices to capture greater market share.
Market Competition
- Excessive competition in a market can drive prices down to unprofitable levels for businesses.
- Agreements called "pools" between companies aimed to share markets and set prices collectively, but these were often unsuccessful due to frequent breaks in agreements and lack of universal participation among companies.
Trusts and Monopolies
- A trust involves multiple companies relinquishing control of their stock to a dominant company for trust certificates, allowing them to share profits without influencing company decisions.
- Trusts were formed to consolidate market competition, reducing the number of players from many to one to ensure profitability.
- The late 1800s saw a concentration of industries under a few dominant businesses, exemplified by monopolies such as Standard Oil Company.
Standard Oil Company
- Controlled a significant portion of oil production, pipeline operations, and oil/natural gas properties.
- The emergence of monopolies resulted in notable abuses of power, prompting government intervention.
Government Regulation
- The Interstate Commerce Act of 1887 established the Interstate Commerce Commission to regulate large businesses, but it failed to achieve its goals effectively.
- The Sherman Antitrust Act of 1890 aimed to foster free competition by prohibiting unreasonable trade restraints and limiting monopolistic practices.
- The Sherman Antitrust Act was deemed necessary to mitigate the control exerted by large monopolies and protect trade interests.
- Despite intentions, the act did not fully succeed; courts sometimes found that dominating monopolies did not necessarily restrain trade, as illustrated by the Sugar monopoly's 98% control of U.S. sugar refining.
Strategies for Small Businesses
- To enhance business competitiveness, small companies could lower prices to expand market share.
- Offering discounts for bulk purchases can attract more customers and incentivize larger volume sales.
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Description
This flashcard quiz covers key concepts related to trusts, monopolies, and industrialists, with a focus on the principle of economy of scale. It explores how big companies leverage economies to reduce costs and gain competitive advantages in the market. Test your understanding of these crucial economic terms and their implications.
