Chapter+7+HW

Chapter 7.1 Notes Key Terms Perfect Competition: a market structure in which a large number or firms all produce the same product Commodity: a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk Barrier to entry: any factor that makes it difficult for a new firm to enter a market Imperfect Competition: a market structure that does not meet the conditions of perfect competition Start-Up Costs: the expenses a firm must pay before it can begin to produce and sell goods

Four Conditions for Perfect Competition 1. Many buyers and sellers participate in the market - no individual can be powerful enough to buy or sell enough goods to influence the total market quantity or the market price - the market determines price without any influence from individual suppliers and consumers 2. Sellers offer identical products - a product that is considered the same regardless of who makes or sells it is calls a commodity - buyers will always choose the supplier with the lowest price 3. Buyers and sellers are well informed about products - a buyer's willingness to find information about prices and availability represents a trade-off - times pent gathering information must be worth the amount of money that will be saved 4. Sellers are able to enter and exit the market freely - firms must be able to enter them when they can make money and leave them when they can't earn enough to stay in business - when on firm can keep others out of the market, it can sell its product at a higher price

Start Up Costs - entrepreneurs need to invest money in a new firm long before the can start earning an income - expenses that new businesses must pay before the first product reaches the customer are called start-up costs - the higher the start-up costs the less entrepreneurs will want to enter the market

Technology - some markets require a high degree of technological know-how

Price and Output - competition within the markets keeps prices and production costs low

Chapter 7.1 Assessment 1. Describe characteristics and give examples of perfect competition (pure competition)? - simplest market structure - assumes that the market is in equilibrium and that all firms sells the same product for the same price 2. How do start-up costs discourage entrepreneurs from entering the market? - if the start-up costs are high entrepreneurs don't want to enter the market because they might be risking more that what they can get back 3. What are two examples of barriers to entry in the magazine market? - the start-up cost to make and distribute the magazine might be high and there are so many other magazines that people already don't buy because everything is already on the internet 4. Why must perfectly competitive markets always deal in commodities? - because buyers will always choose the supplier with the lowest cost 5. Which of these markets come close to perfect competition? (C) pizza

Chapter 7.2 Notes Key Terms Monopoly: a market dominated by a single seller Economies of Scale: factors that cause a producer's average cost per unit to fall as output rises Natural Monopoly: a market that runs most efficiently when one large firm supplies all of the output Government Monopoly: a monopoly created by the government Patent: a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time Franchise: the right to sell a good or service within an exclusive market License: a government issued right to operate a business Price Discrimination: division of customers into groups based on how much they will pay for a good Market Power: the ability of a company to change prices and output like a monopolist

Describing Monopoly - monopoly forms when barriers prevent firms from entering a market that has a single supplier - monopoly markets have only one seller, but any number of buyers - barriers to entry are the principle condition that allows monopolies to exist

Economies of Scale - if a firms start-up costs are high and its average costs fall for each additional unit it produces - characteristics that cause producer's average cost to drop as production rises

Natural Monopolies - a market that runs most efficiently when one large firm provides all of the output - is a second firm enters the market competition will drive down the market price charged to customers and decrease the quantity each firm can sell - one or both firms will go out of business

Technology and Change - development of new technology can destroy a natural monopoly

Government Monopolies - government allows the monopoly to form and then regulates it - government actions themselves can create barriers to entry in markets and thereby create monopolies

Technology Monopolies - government can give a company monopoly power is by issuing a patent - patents give a company exclusive rights to sell a new good or service for a specific period of time

Franchises and Licenses - a franchise is a contract issued by a local authority that gives single firm the right to sell its goods within an exclusive market - a license grants a firm the right to operate the business

Industrial Organizations - rare cases when the government allows companies in an industry to restrict the number of firms in a market

Output Decisions - monopolist faces a limited choice--it can choose either output or price, but not both

The Mono