1. Economics ch. 7 Perfect Competition  A large number of buyers and sellers exchange identical products under the following five conditions. ___________ number of buyers and sellers. Products are _____________. They should act __________________. They should be well-informed. They should be _____ to enter, conduct, or ____________ of business.

2. Sec 1  __________________ sets the equilibrium price, and each firm sets a level of output that will maximize its profits at that price.  ________ competition refers to market structures that lack one or more of the five conditions of perfect competition.

3. Sec 1 Monopolistic Competition  Meets all the conditions of perfect competition except for identical products.  Monopolistic competitors use product differentiation—the real or imagined differences between competing products in the same industry.

4. Sec 1  They use ________ competition, __________, giveaways, or other promotional campaigns to differentiate their products from their competitors.  They sell within a narrow price range but try to raise the price within that range to achieve ______ maximization.

5. Sec 1 _____________  A few large sellers dominate the market.  Farther away from __________ competition that monopolistic competition.  They will __________ their prices when competitors do, but prefer nonprice competition to get an edge.  May all agree to set prices, called ___________, which is illegal.

6. Sec 1  Two forms of collusion: _____________, agreeing to set a price that is often above market price, ____________ up the market for guaranteed sales.

7. Sec 1  Can engage in _______ _____, or a series of price cuts that can push prices lower than the cost of production for a short period of time.  Prices are likely to be __________ than monopolistic competition and much higher than perfect competition.

8. Sec 1 _______________  A market structure with only _______ seller of a particular product.  Americans prefer __________________ and eliminates monopolies for the most part.  Natural monopoly- a single firm produces a product or provides a service because it is cheaper (____________).  __________________ monopoly- the location cannot support two or more identical businesses (___________________).  Technological monopoly- a producer has exclusive rights due to a ____________________.  __________________ monopoly- the government produces a product or service that private industry can’t provide (uranium processing).

9. Sec 2 1. Decreases in _________________ because of mergers & acquisitions can lead to several consequences that create market failures. 2. Reduced output is one way that a monopoly can retain high prices by limiting supply. 3. A large business can exert its economic power over _________. 4. Resource immobility occurs when ____, capital, ______, & entrepreneurs stay within a market where returns are slow & sometimes remain unemployed.

10. Sec 2 5. When resources will not or cannot move to a better market, the existing market does not always function efficiently. 6. Externalities are unintended side effects that either benefit or harm a ___________. 7. _________ externalities are benefits received by someone who had nothing to do with the activity that created the benefit.

11. Sec 2 8. Externalities are market failures because the market prices that buyers and sellers pay do not reflect the costs and/or the benefits of the action. 9. __________ goods are products everyone consumes. 10. The market does not supply such goods because it produces only items that can be withheld if people refuse to pay for them; the need for public goods is a market failure.

12. Sec 3 1. The ___________ laws prevent or break up monopolies, preventing market failures due to inadequate competition. 2. The _____________ Antitrust Act (1890) was the first US law against monopolies. 3. The ________ Antitrust Act (1914) outlawed price discrimination. 4. The Robinson-Patman Act (1936) outlawed special discounts to some customers.

13. Sec 3 5. Government’s goal in regulating is to set same level of price and service that would exist if a monopolistic business existed under competition. 6. The government uses the tax system to regulate businesses with negative externalities, preventing market failures. 7. _________________ requires businesses to reveal information about their products or services to the public.

14. Sec 3 8. The purpose of public disclosure is to provide adequate information to prevent _______________. 9. Corporations, banks, and other lending institutions must disclose certain information. There is also “___________-advertising” laws that prevent sellers from making false claims about their products. 10. Indirect disclosure includes government’s support of the Internet and the availability of government documents on gov’t Web sites.

15. Sec 3 11. Government intervenes in the economy to encourage ___________, prevent ____________, regulate industry, and fulfill the need for public good.