Pure Competition
What determines the price in a purely competitive market?
Supply and Demand
What is a monopoly?
One seller and many buyers.
What kind of products are sold in monopolistic competition?
Similar but not identical products.
What is an oligopoly?
A market dominated by a few large firms.
What is the goal of antitrust laws?
To prevent firms from controlling prices and supply.
Why are purely competitive markets efficient?
Firms compete and use resources wisely to keep costs low.
What is a natural monopoly?
An industry that runs most efficiently with one large provider.
What is non-price competition?
Competing through advertising, branding, or service rather than price.
Give one example of an oligopoly.
The airline industry.
What did the Sherman Antitrust Act of 1890 do?
Outlawed monopolies and limited trade restrictions.
What kind of products are sold in pure competition?
Identical products or commodities.
Why do governments sometimes allow monopolies?
To ensure efficiency in industries like utilities.
What limits profits in monopolistic competition?
New firms entering the market.
What is collusion?
Firms working together illegally to set prices.
What happens when the government splits a monopoly?
More competition and lower prices.
What happens to prices in a purely competitive market over time?
They reach the lowest sustainable level.
What is a government-created monopoly?
A patent.
Give an example of a monopolistically competitive industry.
Fast food or clothing.
What is price leadership?
When one firm sets prices and others follow.
What is deregulation?
Reducing government rules to allow more competition.
Why can firms easily enter and exit pure competition markets?
Entry and exit barriers are low.
What happens when a monopolist raises prices?
Sales fall due to the law of demand.
How does monopolistic competition differ from pure competition?
Firms sell differentiated, not identical, products.
What must happen for a cartel to survive?
All members must stick to agreed output levels.
What is one downside of deregulation?
Too much competition may cause weak firms to fail.