chapter four: regulation and competition Flashcards
1
Q
perfect competition:
A
- many companies
- price takers
- low barriers of entry
- standardized product
- demand curve: perfectly elastic
- ex: agriculture
2
Q
monopoly:
A
- one company
- price maker
- high barriers to entry
- no close substitutes
- demand curve: downward sloping
- ex: local utility companies
3
Q
monopolistic competition:
A
- many companies
- price competition: brand loyalty
- low barriers
- products are differentiated
- elastic
- ex: fast food, small profession companies
4
Q
oligopoly
A
- few competition
- avoid price competition
- price leadership
- high barriers
- advertising
- demand curve: kinked, downward sloping
- ex: cereal and automotive
5
Q
perfect comp.
A
- many buyers and sellers
- identical products
- informed buyers and sellers
- free market, entry and exit
6
Q
barriers to entry (imperfect comp.)
A
- start up costs
- technology
7
Q
price and output
A
- under perfect comp. there are no legal, social or tech barriers
- buyers and sellers are fully aware about the current market price of a product
- none buy or sell at a higher rate
- the same price prevails in the market under perfect comp.
8
Q
monopoly
A
a market structure in which a single seller or producer of a particular product or service dominates the industry
9
Q
economies of scale
A
- the cost advantage companies gain from increasing their output
- an economic term that describes a competitive advantage that large entities have over smaller entities
10
Q
natural monopoly
A
a type of monopoly that occurs when an industrys high infrastructure costs and other barriers make it difficult for new firms to enter
- telephone lines
11
Q
technology and change
A
- sometimes the development of a new technology can destroy a natural monopoly
- it will cut fixed costs and make small companies as efficient as large firms (phone comp)
12
Q
govt. monopolies
A
- technological (patent)
- franchise and licenses
- industrial organizations
13
Q
output decisions
A
- “monopolist’s dilemma”
- falling marginal revenue
- setting a price
- profits
14
Q
price discrimination
A
- targeted discounts
- limits of price discrimination
1. some market power
2. distinct customer groups
3. difficult resale
15
Q
monopolistic competition
A
- occurs in markets where there are multiple similar products that are not perfect substitutes to one another
16
Q
four conditions of monopolistic competition
A
- many firms
- few artificial barriers to entry
- slight control over price
- differentiated products
17
Q
non price competition
A
- physical characteristics
- location
- service level
- advertising
- image or status
18
Q
price, output, profit
A
- pricing under monopolistic competition
19
Q
oligopoly
A
- a market model in which a market for specific goods or services is divided among a small number of large producers
20
Q
market power
A
- predatory pricing means higher prices and lower output
21
Q
regulation
A
- enforce antitrust laws
- break up monopolies
- challenge business practices that limit competition
- block mergers that create unfair market power
22
Q
deregulation
A
- cut regulations that reduce competition
- eliminate price controls
- allowing prices to fall (theoretically)
- remove barriers to entry
- allowing new firms to enter the market
