Unit 3 Econ – Flashcards
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market structure
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the extent to which competition prevails in particular markets
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perfect competition
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market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price
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Why is agriculture often considered to be an example of perfect competition?
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Because individual farmers have almost no control over the market price of their goods
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What is the structure of perfect competition?
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1. large market 2. similar product 3. easy entry and exit 4. easily obtainable information 5. independence
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How does perfect competition benefit society?
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It makes sure the consumers are only paying for what the product is worth plus a small profit
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monopoly
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market situation in which a single supplier makes up with an entire industry for a good or service with no close substitutes
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barriers to entry
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obstacles to competition that prevent others from entering a market
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economies of scale
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low production costs resulting from the large size of output
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patent
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exclusive right to make, use, or sell an invention for a specified number of years
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copyright
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exclusive rights to sell, publish or reproduce creative works for a specified number of years
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oligopoly
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industry dominated by a few suppliers who exercise some control over price
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production differentiation
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manufacturers' use of minor differences in quality and features to try to differentiate between similar goods/services
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cartel
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arrangement among groups of industrial businesses to reduce international competition by controlling the price, production, and distribution of goods
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monopolistic competition
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market in which a large number of sellers offer similar but slightly different products and in which each has some control over the price
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What are the four characteristics of a monopoly?
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1. A single seller 2. No substitute 3. Barriers to entry 4. Almost complete control of market price
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What characteristics of an oligopoly allow it to have a limited control over price
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1. Domination by a few sellers 2. Barriers to entry 3. Identical or slightly diff. products 4. Non price competition 5. Independence
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What are the three types of market structures with imperfect competition?
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Monopoly, oligopoly, and monopolistic competition
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What is the difference between geographic monopoly and a technological monopoly?
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In a geographic monopoly, the setting of the business is isolated and the potential for profits is so small other business don't enter the market. A technological monopoly is a monopoly that exist because the firm controls a manufacturing method, an invention, or a type of technology
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interlocking directorate
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a board of directors, the majority of whose members also serve as the board of directors of a competing corporation
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merger
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the legal combination of 2 or more companies that become one corporation
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conglomerate
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large corporation made up of smaller corporation dealing in unrelating business
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deregulation
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reduction of government regulation and control over business activity
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What is the difference between interlocking directorates and mergers?
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In a merger, the two corporations become one but in interlocking directorates the companies are still separate, but with the same working as board of directors.
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How have some government regulations affected consumers?
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They aim to promote efficiency and competition, but recent evidence shows that govt had actually decreased the amount of competition in the economy
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What is the difference between a horizontal merger and a vertical merger?
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Horizontal mergers involve businesses that make the same product or provide the same service. Vertical mergers take place when firms taking part in different steps of manufacturing come together.
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What two methods does the federal government use to keep businesses competitive?
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Sealed bidding and competitive negotiation
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What is price gouging?
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It is what happens when businesses sharply raise the prices of essential goods such as food, clothing, shelter, medicine, gasoline and equipment needed to preserve lines and property during emergencies.
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financing
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obtaining funds or money capital for business expansion
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cost-benefit analysis
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a financial process in which a business estimates the cost of any action and compares it with the estimated benefits of that action
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revenues
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total income from sales of output
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profit
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the amount earned after a business subtracts its costs from its revenues
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How does competition for financing determine how resources are allocated in the market economy?
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If a business succeeds at financing, it uses funds that might have helped another business similar to them
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What 5 steps would you use in deciding whether to expand a business?
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1. Estimate the costs of expansion 2. Calculate the expected revenues 3. Calculate the expected profits 4. Calculate the cost of a loan + interests 5. Expected profits should outweigh costs of expansion
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debt financing
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raising funds for a business through borrowing
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short-term financing
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funds borrowed by a business for any period of time less than a year
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intermediate-term financing
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funds borrowed by a business for 1-10 years
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long-term financing
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funds borrowed by a business for a period of time longer than 10 years or funds raised by issuing by issuing stocks
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What type of financing is issuing a stock considered as?
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Long-term financing
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Do holders of stock have any rights in a corporation? Explain.
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They have voting rights and they elect the board of directors.
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production
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process of changing resources into goods that satisfy the needs/wants of individuals and business
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consumer goods
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goods produced for the individuals and sold directly to the public to be used as they are
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mechanization
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combined labor of people and machines
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assembly line
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production system in which the good being produced moves on a conveyer belt past workers who perform individual tasks in assembling it
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division of labor
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breaking down of a job into small tasks performed by different workers
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automation
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production process in which machines do the work and people oversee them
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robotics
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sophisticate, computer-controlled, machinery that operates on an assembly lines
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What are the most important steps in the production process?
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planning, purchasing, quality control, and inventory control
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Explain the factors that have changed production since the early 1800s.
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Technology, the assembly line, division of labor, automation, and robotics
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What is the largest category of advertising in most countries?
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Promotions
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marketing
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all the activities needed to generate consumer demand and move goods and services from the producer to the consumer
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consumer sovereignty
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the role of the consumer as ruler of the market when determining the types of goods and produced
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utility
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the amount of satisfaction one gets from a good or service
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market research
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gathering recording and analyzing data about the types of goods and services people want
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market survey
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info gathered by researchers about possible users of a product based on such characteristics as age, gender, income, education, and geographic location
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test-marketing
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offering a product for sale in a small area for a limited period of time to see how well it sells before offering it nationally
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What is the relationship between marketing and utility
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Marketing's main purpose is to convince consumers that a certain product will add to their utility
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price leaderships
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a practice in some industries in which the largest firm publishes its price list ahead of its competitors, who then match those announced prices
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penetration pricing
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selling a new product at a low price to attract customers away from an established product
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promotion
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use of advertising to inform customers that a new or improved product or service is available and to persuade them to buy it
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direct-mail advertising
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type of promotion using a mailer that usually includes a letter describing the product or service and an order or application form
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product life cycle
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series of stages that a product goes through from first introduction to complete withdrawal from the market
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What does place mean when referring to marketing?
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Where the product will be sold. This includes placement in the store itself.
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What are the stages of a typical product life cycle?
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1. Introduction 2. Growth 3. Maturity 4. Decline
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Five ways a firm may promote a product
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1. free samples 2. cents-off 3. coupons 4. gifts 5. rebates
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channels of distribution
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routes by which goods are moved from producers to consumers
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wholesalers
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businesses that purchase large quantities of goods from producers for resale to other businesses
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retailers
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businesses that sell consumer goods directly to the public
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e-commerce
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business transactions conducted over the internet
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Who may perform the storage function of distribution?
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The producer, wholesaler, or retailer
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What are factors that a business must consider in choosing a method of transporting goods?
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Business people must consider the type of good, such as perishable food. The size and weight of the good are also important.
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civilian labor force
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total number of people 16 years or older who are either employed or actively seeking work
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blue-collar workers
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category of workers employed in crafts, manufacturing, and non farm labor
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white-collar workers
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category of workers employed in offices, sales, or professional positions
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service workers
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people who provide services directly to individuals
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unskilled workers
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people whose jobs require no specialized training
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semiskilled workers
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people whose jobs require some training, often using modern technology
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skilled workers
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people who have learned a trade or craft either through a vocational school or as an apprentice to an experienced worker
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professionals
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highly educated individuals with college degrees and usually additional education or training
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minimum wage law
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federal law that sets the lowest legal wage rate that may be paid to certain types of workers
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What factors determine how much a person is paid for his or her work
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skill, type of job, and location of job
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labor union
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association of workers or organized to improve wages and working conditions for its members
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strike
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deliberate work stoppage by workers to force an employer to give in to their demands
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craft union
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union made up of skilled workers in a specific trade or industry
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industrial union
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union made up of all the workers in an industry regardless of job or skill level
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closed shop
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company in which only union members could be hired
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local union
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members of a union in a particular factory, company, or geographic area
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union shop
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company that requires new employees to join a union after a specific period of time
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agency shop
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company in which employees are not required to join the union, but must pay union dues
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right-to-work laws
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state law forbidding unions from forcing workers to join and pay union dues
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What obstacles did labor unions face when they began to organize in the 1800s?
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State legislatures passed laws against unions, and courts upheld them. Many businesses also refused to hire union members or deal with unions.
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What are the major kinds of labor unions?
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Craft and industrial unions
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What two union federations merged in 1955?
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AFL and CIO
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collective bargaining
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process by which unions and employers negotiate the conditions of employment
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cost-of-living adjustment (COLA)
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provision calling for a wage increase each year if the general level of prices rise
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mediation
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a neutral person tries to get both sides to reach an agreement during negotiations
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arbitration
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union and management submit the issues they cannot agree on to a third party for final decision
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lockout
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situation that occurs when management prevents workers from returning to work until they agree to a new contract
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injunction
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court order preventing some activity
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What has become the most recent trend in the importance of labor unions in America?
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They aren't needed because working conditions have improved so dramatically
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What is passive money
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money you make when you aren't even working
