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Chapter 7
Market Structures and Market Failures
41
Economics
9th Grade
03/09/2009

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Term
Market Structure
Definition
The organization of a market, based mainly on the degree of competition.  There are four basic market structures.
Term
Perfect Competition
Definition

A market structure in which many producers supply an identical product.  This is the most efficient structure, with prices set by supply and demand.

Term
Monopoly
Definition

A market structure in which a single producer supplies a unique product that has no close substitutes.  In an unregulated monopoly, the producer sets prices.

Term

Oligopoly

Definition
A market structure in which a few firms dominate the market and produce similar or identical goods. This structure is more competitive than monopoly.
Term
Monopolistic Competition
Definition
A market structure in which many producers supply similar but varied products.  This structure is closest to perfect competition.
Term
Market Failure
Definition
A situation in which the market fails to allocate resources efficiently.
Term
Externality
Definition

A cost or benefit that arises from production or consumption of a good or service that falls on someone other than the producer or consumer.

Term
Public Goods
Definition
Goods and services that are used collectively and that no one can be excluded from using.  Public goods are not provided by markets.  Examples include national defense and clean air.
Term
Market Power
Definition
The ability to influence prices, usually by increasing or decreasing the supply of goods.
Term
Commodity
Definition
A product that is excactly the same no matter who produces it.
Term
Price Takers
Definition
Producers that must accept, or take, themarket price for their product.
Term
Transaction Costs
Definition
Economists refer to the costs of shopping around for the best product at the best price.
Term
Barriers to Entry
Definition
Obstacles that can restrict access to a market and limit competition.
Term
Start-up costs
Definition
The initial expense of launching a business.
Term
Imperfect Competition
Definition
Any market structure in which producers have some control over the price of their products.
Term
Price Setters
Definition
Unlike competitive firms, these monopolistic businesses are the opposite of price takers.
Term
Trusts
Definition
Combinations of firms that worked together to eliminate competition and control prices.
Term
Antitrust Laws
Definition
Federal and state statutes designed to promote competition among businesses.
Term
Public Franchise
Definition
A contract issued by a government entity that gives a firm the sole right to provide a good or service in a certain area.
Term
License
Definition
A legal permit to operate a business or enter a market.
Term
Natural Monopoly
Definition
This type of monopoly arises when a single firm can supply a good or service more efficiently and at a lower cost than two or more competing firms can.
Term
Economies of Scale
Definition
This term refers to the greater efficiency and cost savings that result from increased production.
Term
Concentration Ratio
Definition
The proportion of the total market controlled by a set number of companies.
Term
Price Leadership
Definition
In an oligopoly dominated by a single company, that firm may try to control prices through this.
Term
Price War
Definition
When the other firms also lower their prices.
Term
Collusion
Definition

When producers get together and make agreements on production levels and pricing.

Term
Cartel
Definition
An organization of producers established to set procution and price levels for a product.
Term
Brand
Definition

Trade name.

Term
Brand Loyalty
Definition

Favoring one company over all others.

Term
Product Differentiation
Definition
The market seeks to distinguish the goods and services from those of other firms, even when those products are fairly close substitutes for one another.
Term
Nonprice Competition
Definition

Using product differentiation and advertising to attract customers.

Term
Market Share
Definition

The proportion of total sales in a market.

Term
Negative Externality
Definition
A cost that falls on someone other than the producer or consumer.
Term
Positive Externality
Definition

A benefit that falls on someone other than the producer or consumer.

Term
Technology Spillover
Definition

Results when technical knowledge spreads from one company or individual to another, thereby promoting further innovations.

Term
Private Goods
Definition

Goods and services that are sold in markets.

Term
Excludable
Definition

Anyone who does not pay for the good can be excluded from using it.

Term
Nonexcludable
Definition
Not being able to prevent some people from using goods, for example, streetlights.
Term
Rival in Consumption
Definition
A good cannot be consumed by more than one person at the same time.
Term
Nonrival in Consumption
Definition
A good can be used by more than one person at the same time.  One person’s use of a product does not diminish another’s ability to use the same thing.
Term
Free-Rider Problem
Definition
When private firms have no way to make people who benefit from nonrival and nonexcludable goods pay for them.
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