Lesson 36 pg. 99 - 102 Flashcards
Describe and define a collusion
When only a few firms that are involved in the industry agree to charge the same high prices and offer only the same sort of goods and services, thereby placing unnecessary expenses on consumers, the result is called a collusion.
What prevents more of monopolies and collaborating oligopolies to form in the United States?
The biggest defender of the American freedom from harmful monopolies is the operation of the free market itself.
Explain how the free market prevented the Arab states from continuing to sell oil for outrageous prices to the US in the 1970s?
> Americans affected by these price increases reduced their consumption of gasoline and fuel, found other oil sources, and substituted other products for petroleum.
Before long, Arabian producers were left with more unsold barrels of oil than they knew what to do with.
Then they had to reduce the price of their oil to sell the excess and win back some of their customers.
In this fashion, the free market tends to find its own remedies for harmful monopolies.
Define a trust
trust - a collusion of businesses which join together to restrict or eliminate competition
What are antitrust laws?
Antitrust laws are laws passed by the United States to prevent collusion of businesses from joining together to restrict or eliminate competition.
Name and describe one of the first antitrust laws of 1890, which was enacted by the government in reaction to the large monopolies trusts of the late 1800s.
This antitrust law was the Sherman Act. The Sherman Act made it a criminal offense to monopolize or restrain trade.
The Sherman Act had so many loopholes that Congress later passed what act of 1914? Describe this antitrust law.
To counteract the loopholes of the Sherman Act, Congress passed the Clayton Act of 1914. In this major act, government outlawed several practices that were not specifically addressed in earlier laws such as tying contracts and price discrimination.
Describe what tying contracts were
Tying contracts, which for the consumer to buy a certain product before he can buy the product her really wants, were banned by the Clayton Act of 1914.
Describe what price discrimination was
Price discrimination was a practice which involved selling the same type of goods at different prices to different buyers.
(Price discrimination is allowed, however, in some industries, such as air travel.)
Describe the Federal Trade Commission
The Federal Trade Commission was created by the Trade Commission Act in 1914 as a governmental agency whose purpose is to investigate trade policies.
List the situations in which the use of governmental power may be necessary in a free market
> 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 national emergency, such as war, 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 purchasing of private property is necessary for the public good or safety
When an industry is under a natural monopoly
