Exam (elaborations)
Economics- Chapter 1-2
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Economics- Chapter 1-2
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Economics- Chapter 1-2Barriers to Entry - Factors that make it difficult for a new firm to enter a market. (i.e. Start up
costs and technology)
Start-Up Costs - Expenses a new business must pay before the first product is sold or first
customer served.
Monopoly - A market dominated by a single seller.
Natural Monopoly - Allowed by the government due to one firm can provide a product or
service more efficiently. Examples: Water, Power, Gas, Phone.
Conditions of Monopolistic Competition - Many firms.
Few barriers to entry.
Slight control over prices.
Differentiated products (not identical)- Based on quality.
Price Discrimination - Pricing based on groups of certain people. Examples: Senior discounts,
rebate offers, kids eat free
Nonprice Competition - Businesses competing other than by price. (i.e. quality, location,
service, advertising or image)
Oligopoly - Few large firms dominate a market. Examples: Coke and Pepsi, Airlines
Regulation - Government control by certain requirements.
, Deregulation - Removal of government control.
Collusion - Illegal agreement among firms to set prices and production levels (price fixing)
Sherman Antitrust Act - Act that outlaws monopolies or blocks monopolies and trusts from
forming.
Sole Proprietorships - Owned by a signal individual
Advantages: Easy to start up; receive all benefits; full control
Disadvantages: Unlimited liability; limited resources; lack of permanence
Partnerships - Owned by 2 or more individuals
Advantages: East to start up; shared decision making; more resources
Disadvantages: Potential for conflict; sharing of profits
Limited Partnership - Only 1 person required to be general partner or have unlimited liability.
Limited Liability Partnership - All partners are limited partners
Corporations - Legal entity owned by stockholders
Advantages: Raise capital (money) through shares in corporation.
Disadvantage: Difficult to start up; double taxation; loss of control
Franchise - Semi independent owner pays fees to parent company for right to sell a certain
product or service.
Advantages: Training and support; Standardized quality; Advertising
Disadvantages: Franchise fees; operating restrictions; limited product line
Horizontal Merger - Merger with firm in same business; selling same good or service.
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