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ECONOMICS
CHAPTER 6
Characteristics Perfect Competition
# of Firms In Each Industry
Many
Market Concentration Low
Type of Product Similar or Identical
Availability of Information
Much (Advertising)
Entry Into Industry Very Easy
Control Over Prices None
Examples Agriculture/Candy
Characteristics Monopolistic Competition
# of Firms In Each Industry
Many
Market Concentration Low
Type of Product Similar or Identical
Availability of Information
Much (Advertising)
Entry Into Industry Fairly Easy
Control Over Prices Little
Examples Airlines/Blue Jeans
Characteristics Oligopoly
# of Firms In Each Industry
Few
Market Concentration High
Type of Product Similar or Differentiated
Availability of Information
Much (Advertising)
Entry Into Industry Difficult
Control Over Prices Some
Examples Cereal/American Autos
Characteristics Monopoly
# of Firms In Each Industry
One
Market Concentration Absolute
Type of Product Unique (No Substitutes)
Availability of Information
Some (Advertising)
Entry Into Industry Difficult/Prohibitive
Control Over Prices Complete
Examples Electricity/Gas
MONOPOLY
OLIGOPOLY
MONOPOLISTIC COMPETITION
PERFECT COMPETITION
B.
• 1. Define product differentiation.• When sellers point out differences
between their product and another seller’s product.
B.
• 2. Provide an example of product differentiation (outside of the textbook).
• Quality, size, comfort, fit, taste, etc.
B.
• 3. Define non-price competition.• Competition between firms that is
based on something other than price.
B.
• 4. Provide an example of non-price competition (outside of the textbook).
• Use of celebrities in advertisements, brand names, warranties, guarantees, service, etc.
B.
• 5. How do oligopolies use non-price competition?
• Through advertisements and brand name loyalty.
B.
• 6. How do sellers in oligopolies maintain a degree of control over price?
• Through interdependent pricing, responding to price changes of their competitors.
B.
• 7. Explain the most common form of interdependent pricing.
• Price leadership, a large seller takes the lead at setting a price.
B.
• 8. a. What is a price war?• Sellers aggressively undercut each other’s
prices in order to gain a larger share of the market.
• b. What causes a price war?• Failed pricing policies of sellers.• c. Explain what occurs when price wars
end?• Loss of profits, business go under.
B.
• 9. Define collusion.• The illegal action of sellers in an
industry secretly agreeing to set production levels or prices.
B.
• 10. a. What is a cartel?• An organization of sellers of similar
products. • b. Why are cartels illegal?• They fix prices/interfere with the market.• c. Why are cartels short-lived and
unstable?• Members may not adhere to their
agreements.
B. 11.
Type ofMonopoly
Definition Example
a. Natural Efficient producer
Gas Co./ Electric Co.
b. Geographic Location Lumber Mill
c. Technological
Patent/Copyright
iPod
d. Government
Public Service/ Goods
Post Office
B.
• 12. Explain three forces that limit the seller’s control over prices.
• Consumer demand• Potential competition (more sellers
enter the industry)• Government regulation of the
industry or product
B.
• 13. How did the relationship between government and business change in the late 1800s?
• Trusts held too much control over the market, so the government began to regulate them.
B.
• 14. a. Interstate Commerce Act• Created the Interstate Commerce
Commission to regulate railroad rates, so that railroad companies would not take advantage of farmers who had to transport their goods.
B.
• 14. b. Sherman Antitrust Act• Prohibited any agreement that would
interfere with interstate trade or cause a monopoly to form.
B.
• 14. c. Clayton Antitrust Act• A follow-up to the Sherman Antitrust
Act: Prohibited price discrimination, mergers that would reduce competition, and exclusive sales contracts.
B.
• 14. d. Free Trade Commission Act• Created the Free Trade Commission
to investigate charges of unfair competition.
B.
• 14. e. The Robinson-Patman Act• A follow-up to the Clayton Antitrust
Act: Prohibited price discrimination. Wholesalers cannot charge small sellers higher prices than large sellers.
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