Unit 5 Flashcards
Industry Structures
the makeup of an industry: its number of sellers and their size distribution, the nature of production, extent of barrier to entry
Pure Competition
price takers
many sellers, identical products, no substantial barriers to entry
Monopolistic Competition
many sellers, somewhat differentiated products, no substantial barriers to entry
Oligopoly
few relatively large sellers and substantial barriers to entry
identical of barely differentiated products
Monopoly
Single firm selling a product for which there are no close substitutes and big barriers to entry
Game Theory
the study of strategies employed by interdependent firms
Dominant Strategy
a strategy that should be pursued regardless of the strategy selected by the firms rival
(make more money)
Collusion
agreement between sellers to fix prices, divide up the market, or in some way to limit competition
Market Failure
situations in which a market economy produces too much or too little of certain products and thus does not make the most efficient use of societies limited resources
Imperfect Competition
Imperfect resource allocations - no incentive to carefully use scarce \ resources
monopolies do it a lot they restrict production which prevents competition and cause a artificial shortages
Inadequate Information
for resources to be allocated efficiently people (consumers, sellers, producers ect.) have to have enough information about market conditions
Externalities
Unintended side effect that whether benefits or harms a third party not involved in the activity that caused it
Social Cost
Full cost to society of producing a product
sum of private costs + external costs
Public Goods
products that are collectively consumed by everyone, true demand is not always shown because people don’t pay for them
Free Rider Problems
When a consumer can benefit from goods that they don’t pay for
Sherman Antitrust Act
1890,
outlawed agreements to fix price, limit output, or share the market and monopolies
basically outlawed practices that restricted competition/production
Clayton Antitrust Act
1914
gives greater power to government against monopolies
outlaws price discrimination
Forbade competitors to merge if the impact of merger would be to lessen competition substantially
Robinson-Patman Act
1936
strengthens Clayton act, companies cannot offer special discounts to some customers and not others
Cease and Desist Order
FTC ruling given requiring a company to stop an unfair business practice
Government Regulation
Sets prices by what would exist under regular competition (ex. TV, water, electricity)
Trusts
legally formed combos of corporations or companies
Conscious parallelism
when without any communication whatsoever firms adopt similar policies
Federal trade Commission Act (FTC)
Created the Federal Trade Commission and empowered it to initiate and decide cases involving unfair competition. Also declared deceptive practices and unfair methods of competition as illegal
Price Leadership
an informal arrangement whereby a single firm takes the lead in all price changes in the industry
Government Failure
The enactment of government policies that produce inefficient/ or inequitable results
Public Choice
The study of how the government makes economic decisions
