Chapter 6 Terms

Question 1

Industries

Answer 1

• Groups of firms that produce similar products or provide similar services

Question 2

The Four Main Types of Market Models

Answer 2

• Perfect Competition
• Monopoly
• Monopolistic Competition
• Oligopoly

Question 3

Perfect Competition

Answer 3

• Pure competition

- The purest form of competition

Question 4

Characteristics of a Perfect Competition

Answer 4

• There must be a large number of independent sellers
• There must be a large number of independent buyers
• The industry must be one in which all firms produce a standardized product
• Firms must have free access to the market
• Relevant market information must be made available to all firms and buyers

Question 5

Price Taker

Answer 5

• Each firm in the market

- Has no real control over the price it receives for its product

Question 6

Monopoly

Answer 6

• The situation that arises when a single firm is the only supplier of a good for which no substitute exists

Question 7

Characteristics of a Monopoly

Answer 7

• A firm must be the sole supplier of a good or service
• There must be no close substitutes for the firm’s product
• Entry into the market must be blocked

Question 8

Legal Monopolies

Answer 8

• Granted by the government

- Encourage production

Question 9

Natural Monopoly

Answer 9

• Occurs when a single firm can fill the demand for a good more efficiently than if there were multiple firms in the industry

Question 10

Monopolistic Competition

Answer 10

• The market is the one in which each firm promotes a differentiated product

Question 11

Characteristics of Monopolistic Competition

Answer 11

• There must be a large number of firms in the market
• These firms provide differentiated products
• Firms are able to easily enter or exit the market

Question 12

Oligopoly

Answer 12

• A market that occurs when an industry is dominated by only a few firms

Question 13

Characteristics of an Oligopoly

Answer 13

• There are only a few firms in the entire industry
• Firms in an oligopoly may sell products that are either differentiated or virtually the same
• Potential firms are discouraged by the existence of significant entry barriers

Question 14

Collusion

Answer 14

• When only a few firms are involved in an industry, the owners or managers of those firms might all agree to charge the same high prices and offer only the same sort of goods and services thereby placing unnecessary expenses on consumers

Question 15

Sherman Act

Answer 15

• One of the first and most important antitrust laws

- Enacted by the government in reaction to the large monopolistic trusts of the 1800s

Question 16

Trust

Answer 16

• A collusion of businesses which join together to restrict or eliminate competition

Question 17

Clayton Act

Answer 17

• Passed in 1914 to help the loopholes that were created by the Sherman Act

Question 18

Tying Contracts

Answer 18

• Force the consumer to buy a certain product before he can buy the product he really wants

Question 19

Price Discrimination

Answer 19

• Selling the same type of goods at different prices to different buyers

Question 20

Federal Trade Commission

Answer 20

• A governmental agency whose purpose is to investigate trade practices

Question 21

Situations in which the use of governmental power may be necessary

Answer 21

• When a business compromises national security
• When a business threatens the safety or health of consumers through fraud or deceit
• When a company or group of companies conspires to hinder free competition in the marketplace
• When a national emergency disrupts the normal market cycle
• When a labor organization breaks the law or uses intimidation tactics against workers
• When the public safety or national security is endangered by labor strikes or unrest
• When the purchasing of private property is necessary for the public good or safety
• When an industry is under a natural monopoly