1. Splash Screen

2. Chapter Menu Chapter Introduction Section 1:Section 1:Competition and Market Structures Section 2:Section 2:Market Failures Section 3:Section 3:The Role of Government Visual Summary

3. Chapter Intro 1 A developer has acquired the large piece of vacant land across the street from your house and plans to build a large shopping mall on the property. How might you benefit from the mall? How might it negatively impact your life? Read Chapter 7 to learn about market structures and economic growth.

4. Chapter Intro 2 1.The profit motive acts as an incentive for people to produce and sell goods and services. 2.Economists look at a variety of factors to assess the growth and performance of a nation’s economy. 3.Governments strive for a balance between the costs and benefits of their economic policies to promote economic stability and growth.

5. Chapter Intro-End

6. Section 1-Preview Section Preview In this section, you will learn that market structures include perfect competition, monopolistic competition, oligopoly, and monopoly.

7. Section 1-Key Terms Content Vocabulary laissez-faire market structuremarket structure perfect competitionperfect competition imperfect competitionimperfect competition monopolistic competitionmonopolistic competition product differentiationproduct differentiation nonprice competitionnonprice competition oligopoly collusion price-fixing monopoly natural monopolynatural monopoly economies of scaleeconomies of scale geographic monopolygeographic monopoly technological monopolytechnological monopoly government monopolygovernment monopoly

8. Section 1-Key Terms Academic Vocabulary theoretically equate

9. A.A B.B C.C Section 1 What is the incentive for people to produce and sell goods and services? A.Competition B. Profit motive C. Can make a better product

10. Section 1 Competition and Market Structures In 1776, the average factory was small and businesses were competitive. Laissez-faire was the economic philosophy. Laissez-faire The supply side of the market today has many firms of different sizes producing slightly different products. These conditions help determine market structure.market structure

11. Section 1 Economists group businesses into four market structures. Competition and Market Structures (cont.)

12. Section 1 Perfect Competition Perfect competition is an ideal market situation used to evaluate other market structures.

13. Section 1 Perfect competition—a theoretical ideal used to evaluate other market structuresPerfect competition Perfect Competition (cont.) Perfect Competition and Profit Maximization

14. Section 1 Perfect competition has five necessary conditions: Perfect Competition (cont.) 1.There is a large number of buyers and sellers. 2.Buyers and sellers deal in identical products. 3.Each buyer and seller acts independently. 4.Buyers and sellers are well informed about prices and products. 5.Buyers and sellers are free to enter, conduct, and shut down.

15. Section 1 Market supply and demand set the product’s equilibrium price. Few perfectly competitive markets exist. Perfect Competition (cont.)

16. Section 1 Imperfect competition results inImperfect competition –Less competition –Higher prices for consumers –Fewer products offered Perfect Competition (cont.)

17. A.A B.B C.C D.D Section 1 Why do so few perfectly competitive markets exist? A.Prices offered are too high for consumers. B. Difficult to satisfy all five necessary conditions C. Overhead costs are too high to make it work. D. Too competitive to be successful

18. Section 1 Monopolistic Competition Monopolistic competition shares all the conditions of perfect competition except the same goods or services.

19. Section 1 Under monopolistic competition, products are similar.monopolistic competition Monopolistic—seller’s ability to raise the price within a narrow range Competitive—If sellers raise or lower the price enough, customers will ignore minor differences and change brands. Monopolistic Competition (cont.)

20. Section 1 Monopolistic competition is characterized by product differentiation.product differentiation This is done through nonprice competition.nonprice competition Monopolistic Competition (cont.)

21. A.A B.B C.C Section 1 Are designer labels really better than store brand names when it comes to shoes, clothing, or makeup? A.Absolutely B.Sometimes C.Never

22. Section 1 Oligopoly Oligopoly describes a market in which a few sellers dominate an industry.

23. Section 1 Oligopoly products may have distinct features like makes and models in the auto industry; or products that can be standardized as in the steel industry.Oligopoly Oligopoly (cont.)

24. Section 1 Because oligopolies are so large, when one firm lowers its price or introduces a new product, other firms follow. This interdependent behavior takes the form of collusion.collusion Oligopoly (cont.) –Price-fixingPrice-fixing –Collusion restrains trade and is against the law.

25. A.A B.B C.C D.D Section 1 What are the ramifications of collusion? A.All firms within an industry benefit. B. Against the law C. Leads to lower prices for the consumer D. Several of the above answers are true.

26. Section 1 Monopoly A monopoly is a market with only one seller for a particular product.

27. Section 1 Monopoly is at the opposite end of the spectrum from perfect competition.Monopoly Monopoly (cont.) Few real monopolies exist today. –Americans dislike them. –New technologies compete with existing monopolies. Characteristics of Market Structures

28. Section 1 Types of monopolies Monopoly (cont.) –Natural monopolyNatural monopoly Government gives a public utility a franchise. Economies of scale

29. Section 1 Types of monopolies Monopoly (cont.) –Geographic monopolyGeographic monopoly –Technological monopoly— Government grants a patent or copyright.Technological monopoly –Government monopolyGovernment monopoly Profiles in Economics: Bill Gates

30. A.A B.B C.C Section 1 Compared to an oligopoly industry, what kind of prices do consumers in a monopoly pay? A.Higher B. Lower C. The same

31. Section 1-End

32. Section 2-Preview Section Preview In this section, you will find out that inadequate competition, inadequate information, immobile resources, public goods, and externalities can lead to market failures.

33. Section 2-Key Terms Content Vocabulary market failure public goods externality negative externalitynegative externality Academic Vocabulary collude sustain positive externalitypositive externality

34. A.A B.B C.C Section 2 Are you familiar with any businesses today that may engage in price-fixing? A.Yes B.No C.Maybe

35. Section 2 Types of Market Failures Markets can sometimes fail because of inadequate competition, inadequate information, resource immobility, public goods, and externalities.

36. Section 2 Types of Market Failures (cont.) Five main causes of market failuremarket failure –Inadequate competition –Inadequate information –Resource immobility –Public goodsPublic goods

37. Section 2 Types of Market Failures (cont.) Five main causes of market failuremarket failure –ExternalitiesExternalities Negative externality Positive externality

38. A.A B.B C.C Section 2 How does inadequate information lead to market failure? A.Profits spent on executives B.Positive externalities result C. Slow drain on the economy

39. Section 2 Dealing with Externalities Externalities indicate a market failure and can be corrected with government action.

40. Section 2 Externalities distort decisions made by consumers and producers, resulting in a less efficient economy. Dealing with Externalities (cont.)

41. Section 2 Correcting negative externalities Dealing with Externalities (cont.) –Government adds a tax onto products sold by the firm. –Firms have less incentive because the tax increases their product’s price. –Higher prices reduce quantity demanded. –People affected may face fewer problems.

42. Section 2 Correcting positive externalities Dealing with Externalities (cont.) –Subsidizing local programs, such as education, helps communities. –Programs are expensive and many are left underfunded.

43. A.A B.B C.C Section 2 Do you think a fully paid educational program for all citizens, from preschool through college, would make communities substantially better than they are? A.Absolutely B. May not change the community much C. Won’t change the community at all

44. Section 2-End

45. Section 3-Preview Section Preview In this section, you will learn that one of the economic functions of government in a market economy is to maintain competition.

46. Section 3-Key Terms Content Vocabulary trust price discriminationprice discrimination cease and desist ordercease and desist order Academic Vocabulary restrained intervention public disclosurepublic disclosure

47. A.A B.B Section 3 Have you or your family ever had a product you purchased recalled? A.Yes B.No

48. Section 3 Maintain Competition The government exercises its power to maintain competition within markets.

49. Section 3 Maintain Competition (cont.) Two ways government maintains competitive markets –Prohibiting market structures that are not competitive –Regulating markets where full competition is not possible

50. Section 3 Maintain Competition (cont.) Laws have historically been passed to restrict monopolies and trusts.trusts –Congress passed the Sherman Antitrust Act in 1890. –Clayton Antitrust Act in 1914 outlawed price discrimination. price discrimination Anti-Monopoly Legislation

51. Section 3 Maintain Competition (cont.) Laws have historically been passed to restrict monopolies and trusts.trusts –Federal Trade Commission Act gave authority to issue a cease and desist order.cease and desist order Anti-Monopoly Legislation

52. Section 3 Maintain Competition (cont.) Natural monopolies are not necessarily bad and therefore should not be broken up. Many monopolies are regulated by government agencies. Federal Regulatory Agencies

53. A.A B.B C.C Section 3 Which governmental agency oversees our air and water? A.Federal Trade Commission B. Environmental Protection Agency C. Food and Drug Administration

54. Section 3 Improve Economic Efficiency Providing public goods and promoting transparency can improve economic efficiency.

55. Section 3 Efficient and competitive markets need adequate and transparent information. Therefore, public disclosure is paramount to economic efficiency.public disclosure Improve Economic Efficiency (cont.)

56. Section 3 Truth-in-advertising laws Consumer lending laws Securities and Exchange Commission Government documents, studies, and reports are available in public libraries. Improve Economic Efficiency (cont.)

57. Section 3 Government provides many public goods because a free economy does not promote them. Public goods, like decent roads and highways, make the economy more productive. Firms need an educated workforce. Improve Economic Efficiency (cont.)

58. A.A B.B C.C D.D Section 3 Why is public disclosure so important to consumers? A.Protects workers B. Protects retirement and stock investments C. Promotes safe products and services D. All of the above

59. Section 3 Modified Free Enterprise Because the government is involved in certain aspects of our economy, it is a modified version of free enterprise.

60. Section 3 A modified free enterprise economy is a result of the U.S. economy evolving over time. Government has a responsibility to protect the rights of workers and protect consumers from false claims, harmful products, and price gouging. Modified Free Enterprise (cont.)

61. Section 3 Now government concerns are focused on promoting economic efficiency by supplying public goods and promoting transparency. Modified Free Enterprise (cont.)

62. A.A B.B C.C D.D Section 3 Is government intervening enough when it comes to identity theft, which has become so rampant today? A.More work needs to be done by the government. B. More work needs to be done by the private sector instead of the government. C. Both the public and private sectors need to help curtail this problem. D. There is no problem and therefore nothing needs to be done.

63. Section 3-End

64. Market Structures We can differentiate among four different market structures. One is called perfect competition; the other three are different kinds of imperfect competition. VS 1

65. VS 2 Market Failures When one of the conditions necessary for competitive markets does not exist, market failures can occur. Markets usually fail because of one of five factors.

66. VS 3 Government Roles In order to carry out its legal and social obligations, the government can encourage competition and regulate monopolies.

67. VS-End

68. Figure 1

69. Figure 2

70. Figure 3

71. Figure 4

72. Profile Bill Gates (1955– ) co-founder and chairman of Microsoft Corporation ranked the richest man in the world for 12 years in a row

73. Concept Trans Menu Economic Concepts Transparencies Transparency 9Competition and Market Structure Transparency 11Market Failures Transparency 12The Role of the Government Select a transparency to view.

74. Concepts Trans 1

75. Concepts Trans 2

76. Concepts Trans 3

77. DFS Trans 1

78. DFS Trans 2

79. DFS Trans 3

80. Vocab1 laissez-faire philosophy that government should not interfere with business activities

81. Vocab2 market structure nature and degree of competition among firms in the same industry

82. Vocab3 perfect competition market structure with many well- informed and independent buyers and sellers who exchange identical products

83. Vocab4 imperfect competition market structure that does not meet all conditions of perfect competition

84. Vocab5 monopolistic competition market structure that meets all conditions of perfect competition except identical products

85. Vocab6 product differentiation real or imagined differences between competing products in the same industry

86. Vocab7 nonprice competition sales strategy focusing on a product’s appearance, quality, or design rather than its price

87. Vocab8 oligopoly market structure in which a few large sellers dominate the industry

88. Vocab9 collusion agreement, usually illegal, among producers to fix prices, limit output, or divide markets

89. Vocab10 price-fixing agreement, usually illegal, by firms to charge the same price for a product

90. Vocab11 monopoly market structure with a single seller of a particular product

91. Vocab12 natural monopoly market structure where average costs of production are lowest when a single firm exists

92. Vocab13 economies of scale situation in which the average cost of production falls as a firm gets larger

93. Vocab14 geographic monopoly market structure in which one firm has a monopoly in a geographic area

94. Vocab15 technological monopoly monopoly based on a firm’s ownership or control of a production method, process, or other scientific advance

95. Vocab16 government monopoly a monopoly owned and operated by the government

96. Vocab17 theoretically existing only in theory; not practical

97. Vocab18 equate to represent as equal or equivalent

98. Vocab19 market failure condition that causes a competitive market to fail

99. Vocab20 public goods goods or services whose benefits are available to everyone and are paid for collectively

100. Vocab21 externality economic side effect that affects an uninvolved third party

101. Vocab22 negative externality harmful side effect that affects an uninvolved third party

102. Vocab23 positive externality beneficial side effect that affects an uninvolved third party

103. Vocab24 collude to act together in secret, especially with harmful or illegal intent

104. Vocab25 sustain to support or hold up

105. Vocab26 trust illegal combination of corporations or companies organized to hinder competition

106. Vocab27 price discrimination practice of selling the same product at different prices to different buyers

107. Vocab28 cease and desist order ruling requiring a company to stop an unfair business practice that reduces or limits competition

108. Vocab29 public disclosure requirement that a business reveal information about its products or its operations to the public

109. Vocab30 restrained limited the activity or growth of

110. Vocab31 intervention involvement in a situation to alter the outcome

111. Help Click the Forward button to go to the next slide. Click the Previous button to return to the previous slide. Click the Home button to return to the Chapter Menu. Click the Transparency button from the Chapter Menu, Chapter Introduction, or Visual Summary slides to access the Economic Concepts transparencies that are relevant to this chapter. From within a section, click on this button to access the relevant Daily Focus Skills Transparency. Click the Return button in a feature to return to the main presentation. Click the Economics Online button to access online textbook features. Click the Reference Atlas button to access the Interactive Reference Atlas. Click the Exit button or press the Escape key [Esc] to end the chapter slide show. Click the Help button to access this screen. Links to Presentation Plus! features such as Graphs in Motion, Charts in Motion, and figures from your textbook are located at the bottom of relevant screens. To use this Presentation Plus! product:

112. End of Custom Shows This slide is intentionally blank.