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Unit 3: Partners in the American Economy

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1 Unit 3: Partners in the American Economy

2 Chapter 7 -Market Structures
"The inevitable tendency in capitalism is the accumulation of wealth. According to its own laws, capital always moves to where it can generate the greatest profit, never the greatest good. Why does everyone know the saying, "The rich get richer, and the poor get poorer?" Because it's true." - Richard Curtis in the Colorado Daily, page 6, June 8-9, 1994

3 Why Do Markets Exist? Markets exist because we aren’t self-sufficient but instead consume many products produced by other people. The typical person is not self-sufficient but instead specializes by working at a particular job and uses his or her income to purchase goods and services.


5 Adam Smith Role of government restricted to: Protect private property
Enforce contracts Settle disputes Protect businesses from foreign competition

6 Review: When MC = MR profit is maximized
Profit is maximized when “one additional unit” will NOT increase profit

7 Section 1 What is Perfect Competition?
1. What are the 5 characteristics of perfect competition?

8 Many buyers and sellers
No one seller has complete control over the price. If they did this would be a MONOPOLY! 2. List 5 products which have many buyers and sellers who have no control over the price but fluctuates with the market. 1968 Pontiac GTO "Woodward Ad"

9 Product Differentiation
Real or imagined differences between companies and products 3. Define standardized product.

10 Non-Price Competition
In a market with standardized products producers must find other ways to convince you to buy their good or service. Non-price competition is the use of advertising and promotions to convince consumer of a brand difference

11 Freedom to enter and exit the market
No government regulation prevents a business or customer from entering the market. 4. List 5 examples of markets which our government DOES regulate.

12 Buyers and Sellers Act Independently
Interaction between buyers and sellers sets the Equilibrium price. This assures consumers the price will remain competitive.

13 Buyers and Sellers are Well-Informed
Both buyers and sellers have enough information to make wise choices. The US Women’s Volleyball Team and Ford Mustang Convertible

14 Imperfect Competition
When any of the 5 conditions for perfect competition are not met 5. Read Example 1 in our text – Corn. What are the 2 reasons the corn market is NOT a perfect market? 6. Read Example 2 on beef. What are 2 reasons the beef market is NOT perfect competition?

15 Section 2 The Impact of Monopoly
You deserve a break today (McDonalds) Be all that you can be (U.S. Army) M'm, M'm good (Campbell's) See the USA in your ******** (GM) I wish I was an Oscar Meyer Wiener (Oscar Meyer) Double your pleasure, double your fun (Wrigley's Doublemint Gum) It's the Real Thing (Coca Cola) A little dab'll do ya (Brylcreem) Define: 7. Monopoly 8. Cartel 9. Price Maker 10. Barrier to entry

16 Characteristics of a Monopoly
11. What are the 3 characteristics of a Monopoly? 12. What example does your book give of a monopoly? 13. Americans do NOT like monopolies. Nevertheless, list five examples of monopolies in the US.

17 Kinds of Monopolies 14. Define Natural Monopoly
15. Read Example 1: Water Monopoly. What are the 3 benefits to society of allowing a water company to maintain a monopoly? 16. Why is this an example of economies of scale? 17. In return for protection of their monopoly status, what does the government require from the monopoly?

18 Government Monopoly 18. Define Government Monopoly.
19. Read Example 2: The Postal Service. How is this an example of a government monopoly? 20. THINK: Why does the government believe it is essential to have a regulated mail service? 21. What competition for the Postal Service has developed?

19 Technological Monopoly
22. Define Technological Monopoly 23. Read Example 3: Polaroid. For what process did Polaroid have a monopoly? 24. What is a patent? 25. How long does a patent last? 26. What else may end a technological monopoly?

20 Geographic Monopoly 27. Define Geographic Monopoly.
28. Read Example 4: Professional Sports 29. What 2 conditions make baseball a monopoly? 30. What are 2 benefits for the team owners because of their monopoly status? When you’re the fairest of them all.

21 Types of Geographic Monopoly
31. What is another type of geographic monopoly? 32. Why does this type of geographic monopoly often occur in small communities? 33. What 3 modern conditions have contributed to decrease monopolies caused by physical isolation?

22 Profit Maximization is the goal

23 How will Elasticity affect a Monopoly?
34. Why is the demand curve for a monopoly STILL have a downward slope? 35. THINK: How will elasticity affect a monopoly? 36. How does a monopolist actually control the price? Review: What is the law of supply?

24 Example: Drug Manufacturer
37. Read the example. About how long does a drug patent last in the US? 38. After the patent expires, how will the price for the drug be established? 39. What is a generic? 40. What did the makers of Claritin do after their patent expired?

25 Section 3 – Other Market Structures
41. What is Monopolistic Competition? 42. Why is a market monopolistic? 43. What are the 2 distinguishing characteristics of monopolistic competition?

26 Product Differentiation
44. What is product differentiation? 45. List 5 examples of goods advertised as very different, but the actual difference is small.

27 Nonprice Competition Less story, More Candy
46. Define nonprice competition. 47. What 4 examples does your text give of nonprice competition? 48. Let’s look at the characteristics of monopolistic competition! Yeah! Less story, More Candy

28 Characteristic 1 Many Sellers and Buyers
49. Why might seller have a monopoly on your business? 50. List 5 examples of products which you ALWAYS purchase. 25 Years and still going strong

29 Characteristic 2 Similar but Differentiated Products
51. How do sellers in monopolistic competition convince consumers their product is different? 52. What are 5 examples of goods or services you use which are advertised as different but you believe are really very similar? 53. What is a focus group?

30 Characteristic 3 Limited Control of Prices
54. What can give producers limited control over prices? 55. Why can producers still not charge any price they want?

31 Characteristic 4 Freedom to Enter or Exit Market
56. THINK: What do we know will happen if profits increase for a product? 57. If these new producers can make the product more efficiently what will happen to the small businesses that can not? 58. What do businesses leaving the restaurant market have to do?

32 Oligopoly 59. What is an oligopoly? 60. Define market share.
61. Define start-up costs.

33 Characteristics of an Oligopoly
62. What is the first characteristic? 63. Give an example. 64. What is characteristic 2? 65. Give an example. 66. What is characteristic 3?

34 Oligopoly Market 67. Of what action must competitors in an oligopoly always be aware? 68. What is characteristic 4? 69. For what 2 reasons might a business have difficulty entering an oligopoly market?

35 Comparing Market Structures
70. Identify the advantages and disadvantages of each type of market structure by recreating Figure 7.5. Number of Sellers Type of Product Sellers’ Control Over Prices Barriers to Enter or Exit Market Perfect Competition Monopolistic Competition Oligopoly Monopoly

36 Regulation and DeregulationToday
71. Define regulation 72. Define antitrust legislation 73. Define trust 74. Define merger 75. What 3 industries developed monopolies in the 1800s? 76. What act was passed in 1890 to control businesses attempting to restrain trade? 77. What government agencies are responsible for enforcing these regulations? 78. What does the government look at to determine if they will allow a merger?

37 Ensuring a Level Playing Field
79. Why is competition so important? 80. Define price fixing. 81. How was the CD market an example of price fixing? 82. Define market allocation. 83. What example does your book give for this situation? 84. What is predatory pricing? 85. What corporation does Mrs. Burton dislike intensely which uses predatory pricing to drive competitors out of the market?

38 Protecting Consumers 86. Define cease and desist order.
87. Define public disclosure. 88. What agency is primarily responsible for promoting competition and preserving unfair business practices? 89. Which regulates the market for stocks and bonds? 90. Which is responsible for protecting consumers from false labeling of a product? 91. Which regulates the communications industry? 92. Which enforces environmental laws? 93. Which sets safety standards for products?

39 Deregulating Industries
94. Define deregulation. 95. Why does deregulation usually result in lower prices? THINK: Why do industries which are regulated have little incentive to become more efficient? 96. What are 5 examples of business which have little incentive to be efficient? 97. What industry was deregulated in 1978? THINK: After the initial deregulation, what occurred in this industry?

40 Chapter 8 Types of Business Organizations
98. What term identifies an enterprise that produces G or S for a profit? 99. What do we call a business owned and managed by a singe person? 100. They account for what percent of all businesses in the United States, BUT they only account for what percent of all sales in the US? THINK: Why?

41 Sole Proprietorships 101. What are the 4 advantages of a sole proprietorship? 102. What are the 3 disadvantages of a sole proprietorship? 103. Define limited life. 104. Define unlimited liability. 105. Identify a sole proprietorship.

42 Section 2 Forms of Partnerships
106. Define partnership. 107. In a general partnership, who is responsible for managing the business and who is liable fore all business debs and losses? 108. In a limited partnership, who is often responsible for all debts. What is a limited liability partnership? 109. What is the only reason a limited partner would be responsible for debts of the firm? 110. What are some examples of LLPs? THINK: Why would medical partnerships desire to be LLPS?

43 Advantages and Disadvantages
111. What are the 5 advantages of a partnership? 112. What are the 3 disadvantages? 113. List some examples of partnerships.

44 Section 3 Corporations, Mergers, and Multinationals
114. Who owns a corporation? 115. Why is a stockholder NOT responsible for a corporation’s liabilities? 116. Define stock. 117. Define dividend. 118. What is the difference between a public company and a private company? 119. List 5 corporations in the US today.

45 Advantages and Disadvantages
120. What are the 4 advantages of a corporation? 121. What are the 4 disadvantages? 122. Why is a corporation double taxed?

46 Business Consolidation
123. What are four reasons a business might consolidate? 124. What term identifies the joining of companies that offer the same or similar products or services? 125. Give an example. 126. Which term describes the combining of companies involved in different steps of production or marketing of a product or service? 127. Give an example. 128. What is a conglomerate? 129. Give an example. 130. What is a multinational corporation? 131. List 5 examples.

47 Section 4 Franchises, Co-ops, and Nonprofits
132. What is a franchise? 133. What term is given to the individual business which pays a fee to the parent company in return for the right to sell the company’s products? 134. What are the world’s five leading franchises? 135. What are 3 advantages to a franchise? 136. What are the 3 disadvantages?

48 Cooperatives and Nonprofits
137. What is a cooperative? 138. What are the 3 types of cooperatives? 139. Which purchases large quantities and sells them to the members at a reduced price? 140. What is an example? 131. Which provides their members with a service? 142. What is an example?

49 Nonprofit Organizations
143. Which is mostly involved in the agriculture industry to allow better marketing of their products? 144. What is an example? 145. What are the 2 types of nonprofits? 146. List 5 examples of nonprofit organizations.

50 Market Failures Inadequate competition – few, large firms control market Inadequate information - denies people awareness of better prices or choices

51 More Market Failures Resource immobility - factors of production cannot or refuse to move to other markets

52 Failure of the market to provide public goods
Examples: Highways National defense Social Security

53 Externalities Economic side effects to uninvolved third parties.
May be positive – provides unexpected advantage Or negative – provides unexpected consequence

54 Examples of Externalities
Positive A well-maintained property next door that raises the market value of your own property. A pleasant cologne or scent worn by the person seated next to you. Improved driving habits that reduce accident risks. A scientific advance. Negative Air pollution. Water pollution. Loud parties next door. Traffic congestion. Second-hand cigarette smoke suffered by a non-smoker. Increased health insurance premium due to alcohol or tobacco consumption.

55 Chapter 9 The Role of Labor
Section 1 – How Are Wages Determined? 147. At what point do we find the interaction of the supply and demand for labor? 148. What reflects a worker’s productivity in a competitive labor market? 149. Define labor productivity. 150. In a free market, what should be a reflection of a worker’s higher productivity? 151. Figures 9.1 and 9.2 Question 1 Question 2 Question 3 152. Figure 9.3

56 Why do Wage Rates Differ?
153. What is the wage rate? 154. How are they determined? 155. What 4 factors influence supply and demand for labor? 156. What is human capital?

57 Factor 1 – Human Capital 157. What is Unskilled labor?
158. List 5 examples of unskilled jobs. 159. What is Semiskilled labor? 160. List 5 examples of semiskilled jobs. 161. What is required for Skilled labor? 162. List 5 examples of skilled labor jobs. 163. What must a worker have to be a Professional? 164. List 5 examples of professionals.

58 Education is Income! Individuals with additional years of schooling are more likely to have: Higher basic skills, Reduced chances of unemployment, Higher rates of access to full time employment, More weeks and hours of work over the course of a year, Higher rates of access to work-related benefits like health insurance and pension, Large annual earnings advantages that persist and grow overtime as they age

59 Age Earnings Profile of College Graduates and High School Graduates, 2000

60 Factor 2 Working Conditions
165. How does the wage rate signal jobs which are dangerous or unpleasant? 166. List 5 jobs you could never do. 167. List 5 jobs with lower pay, but other rewards and perks.

61 Factor 3 Discrimination
168. What are 3 factors which may cause an employer to discriminate? 169. What is the glass ceiling?

62 Factor 4 Government Actions
170. Why might a government try to control a supply of labor or a wage? 171. What do we call the lowest wage allowed by law in the US? THINK: What did we learn in the last unit which minimum wage is an example of? (HINT: floor or ceiling?)

63 Section 2 Trends in Today’s Labor Market
172. What are the 3 criteria to be included in the civilian labor market? 173. What 2 changes have occurred in the US labor market?

64 The amount of information in the world is DOUBLING every 18 months

65 Changing Occupations 174. What term describes jobs related directly to natural resources? List 5 examples. 175. What jobs are related to the production of goods including the materials and energy to produce them? List 5 examples. 176. What are tertiary jobs? List 5 examples.

66 Globalization and Jobs
177. Define outsourcing and give an example of outsourcing. 178. Define in sourcing and give an example of in sourcing.

67 Changes in the Way People Work
THINK: How has telecommuting made life easier for working mothers? 179. What is contingent employment? 180. What term is applied to someone who sells their services on a contract basis? 181. What is another change in the way people are working cited by your text?

68 The Labor Movement Define the following terms 182. Closed shop
183. Union shop 184. Right-to-work laws 185. Collective bargaining 186. Binding arbitration

69 Chapter 13 Section 1 Unemployment in Today’s Economy
187. Unemployment is the percentage of the labor force that is _____ and ________. 188. At what age do we join the labor force statistics? 189. What department in the US is responsible for keeping this data?

70 Unemployment Rate Percentage of people in the labor force who are unemployed Unemployment rate = number of people unemployed Labor force X 100 What is rate for a population of million if 8.7 million are unemployed? Answer: 6.1 %

71 Labor Force Participation Rate
Working age population X100 What is the rate from June, 2002 if; 143.7 million working 213.8 million in working age population? 67.2 %

72 What is Full Employment?
All Occupations Employment 127,420,170 Mean Hourly $17.56 Mean Annual $36,520 No cyclical unemployment All employment is frictional, structural, and seasonal This is called the ‘natural unemployment rate’

73 Unemployment Considerations
190. What is the term given to people who work less hours than they desire or at a job below their skill level? THINK: Full employment does NOT mean a zero unemployment rate. What does it mean? 191. At what unemployment rate do economist consider the US to have full employment? What are Job Losers? Job Leavers? Reentrants?

74 Types of Unemployment Frictional Seasonal Structural Cyclical

75 Types of Unemployment 192. What is Frictional unemployment?
People entering and leaving labor force thru creation and destruction of jobs Normal and healthy

76 Seasonal unemployment
Because of seasonal weather patterns Migrant workers are an example of seasonal unemployment. 193. List 5 other examples. Hotel and catering - Tourism - Fruit picking - Father Christmases

77 Structural Unemployment
Changes in technology or international competition change the skills needed to perform jobs or change job locations 194. What are 3 conditions which can cause structural unemployment?

78 Cyclical Unemployment
Changing over the business cycle Increases during recession Decreases during expansion 195. What is the average length of time a worker is unemployed in the US? THINK: Why is that NOT the case today? Michelle Torres

79 Traditional Theory of Wages
Supply and demand for specific skills determines wage or salary Exceptions: Nonproductive workers employed because of family ties of political influence Underemployed due to race or gender

80 Theory of Negotiated Wages
Considers power of organized labor in determining wages Union shops Susie Orman

81 Economic Rent The value of the wage earned over and above that necessary to keep a factor in its current employment

82 Signaling Theory Employers willing to pay more for degrees
Serve as ‘signals’ of superior ability

83 The Impact of Unemployment
196. Why is unemployment inefficient? 197. Which workers lose their jobs first in most situations? 198. What term do we use to describe someone who lose faith in their abilities and skills because they can not find another job?

84 Marginal Revenue Productivity
MRP = the addition to total revenue (TR) received from the sale of an additional unit of output Worker instrumental in producing that output Productivity refers to the amount produced per worker per period of time. Marginal Physical Product (MPP) – the addition to total product as a result of the employment of one additional unit of labour MRP = MPP x P 199. If a good sells for $1.00 and a worker produces 300 per day, the MRP of that unit of labour is __________ per day

85 The Supply of Labor The amount of people offering their labor at different wage rates. Involves an opportunity cost – work versus leisure Wage rate must be sufficient to overcome the opportunity cost of leisure

86 Not another Elasticity!!
Geographical mobility of labour: The willingness of people to move The cost and availability of housing in different areas The extent of social, cultural and family ties

87 Labor Mobility The amount of information available to workers about jobs in other areas The cost of re-location Anxiety of the idea of re-location You Deserve a Break Today

88 The Labor Market - Demand
Wage Rate ($ per hour) SL A rise in the demand for labor would force up the wage rate as there would be excess demand for labor. 7.50 6.00 Excess Demand DL1 DL Q1 Q2 Number employed

89 The Labor Market - Supply
200. Assume an Eqp of $5/hour. Draw a graph depicting this. Then add a government imposed EqP of $7 / hour. Draw and show either a surplus or shortage. The Labor Market - Supply Wage Rate ($ per hour) SL SL1 6.00 An increase in the supply of labor would lead to a fall in the wage rate as there would be an excess supply of labor. 5.00 Excess Supply DL Q1 Q2 Number employed

90 WORD of the DAY TERM OF THE DAY Sucker Rally
What Does it Mean? A temporary rise in a specific stock or the market as a whole. A sucker rally occurs with little fundamental information to back the movement in price. This rally may continue just long enough for the "suckers" to get on board, after which the market or specific stock falls. Also known as a "dead cat bounce" or a "bull trap". A sucker rally is a buzz word describing a rise in price that does not properly reflect the true value of the stock.

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