CHAPTER 9 Resource Manager CHAPTER 9 Resource Manager

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Keenan, Diane, et al. Economics U$A: High School ActivityPacks. The Annenberg/CPB Collection. Companion text forthe video series mentioned below.

Multimedia MaterialEconomics U$A: Monopoly/Oligopolies. The Annenberg/

CPB Collection. Color video, 60 mins. Discusses the natureof these two theoretical models of competition.

Additional Resources


PROCEDURE

1. Review and discuss global economic pressures such as the U.S. trade deficit, U.S. imports and exports, and theeffect of technological advances on the global market and the U.S. economy and jobs.

2. Organize the class into three groups. Each group will be responsible for researching and making a time line ofone of the following eras in the history of American global trading: colonial America to 1800, United Statestrade in the 1800s, and United States trade in the twentieth century. In constructing the time line, groups willadd appropriate comments, pictures/photos, and symbols to illustrate the various important trade events on their portion of the time line.

3. Each group will make an oral presentation of their work, explaining the events that they have chosen to include.Some events that might be included are:

Colonial America: Early trade routes and products, triangular trade, the slave trade, internal/external taxes,Boston Tea Party, and constitutional controversies on trade and tariffs.The United States in the 1800s: The Embargo Act (Jefferson’s administration), Non-Intercourse Act, protective tariffs (textiles), Tariff of Abominations, Compromise of 1833, McKinley Tariff, New York Trade Fair of1845, and the Philadelphia Centennial Exposition of 1876.The United States in the Twentieth Century: Payne-Aldridge Tariff, the Underwood Act, the Smoot-HawleyAct, GATT, and NAFTA.

4. Organize the class into groups of four, two to a team, to research and hold a debate before the class on the fol-lowing question: The United States should have a policy of free trade in the global economy.

5. As an enrichment activity, you may wish to have students write a paper on the topic, “Has free trade ever beenfree?” or write a letter to a member of the U.S. Congress expressing their viewpoint on a current trade issue(NAFTA, GATT, etc.).

Assessment

1. Students will use the assessment lists for a poster and an oral presentation to evaluate their time lines.

2. Students will use the classroom assessment lists for group work and an issue controversy to evaluate their papersor letters.

3. Students will use the classroom assessment list for a writing to evaluate their papers or letters.

▼ BACKGROUND

Our nation’s history includes arguments forand against free trade. Over the years,American trade policies have included compromises after disagreements about taxes,tariffs, and boycotted products occurred.

▼ MATERIALS

Yard-wide rolled paper (butcher paper) fortime lines; marker pens; pictures and photos

▼ OBJECTIVES

After completing this activity, students will beable to• Trace and explain the history of free trade

and trade barriers.• Describe the arguments for and against free

trade and managed trade.• Evaluate and critique tariffs from colonial

America to the present.• Evaluate if free trade has ever been

really free.

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F REE TRADE

Name Date Class

RUBRICSan oral presentation,group work, aposter, an issue con-troversy, a writing

8

Performance Assessment Activity 8

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9, B

13. Market structure describes

a. profitability of a business. b. ownership structure of a business.c. structure of a company’s board of directors. d. amount of competition a business faces.

14. Natural monopolies are businesses that

a. deal with natural resources. b. compete against other monopolies.c. are unregulated. d. have very large economies of scale.

15. Which of the following represents a form of nonprice competition?

a. barriers to entry b. economies of scalec. advertising d. deception

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.

16. Understanding Cause and Effect How do barriers to entry allow a producer to restrict competition?

17. Identifying Central Issues What is the most common type of market structure in the United States? Whatare some examples of firms in this type of industry?

APPLYING SKILLS

Sequencing and Categorizing Information

18. When was the Federal Trade Commission established?

19. Which law made it illegal to try to monopolize any part of interstate commerce?

20. What does the Clayton Act ban?

Law Function

Sherman Antitrust Act (1890) Outlawed agreements and conspiracies that restrain interstatetrade. Made it illegal to monopolize or attempt to monopolizeany part of interstate commerce

Clayton Act (1914) Restricted price discrimination—the practice of selling thesame good to different buyers at different prices. Outlawedinterlocking directorates between competitors. Outlawed mergers that substantially reduce competition

Federal Trade Commission Act (1914) Established the Federal Trade Commission as an independentantitrust agency

Chapter 9 Test Form B

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C OMPETITION AND MONOPOLIES

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. If one company purchases 52 percent of the stock of another company, the transaction is known as a

a. joint venture. b. partnership.c. interlocking directorate. d. merger.

12. Interlocking directorates occur when the boards of directors of competing companies

a. buy out similar firms in their industry. b. sell their companies to one another.c. are composed of many of the same members. d. obtain a monopoly in a particular industry.

A1. economies of scale

2. perfect competition

3. conglomerate

4. deregulation

5. market structure

6. copyright

7. product differentiation

8. cartel

9. oligopoly

10. monopoly

USING KEY TERMS

Matching: Match each item in Column A with the items in Column B. Write the correctletters in the blanks.

Ba. market situation in which there are numerous buyers and sell-

ers, and no single buyer or seller can affect price

b. market situation in which a single supplier makes up an entireindustry

c. industry dominated by a few suppliers who exercise somecontrol over price

d. arrangement among a group of industrial businesses, often indifferent countries, to reduce international competition bycontrolling the price, production, and distribution of goods

e. decreases in the average costs of production over time thatresult from the large quantity or scale of output

f. large corporation made up of smaller corporations dealing inunrelated businesses

g. government protection that gives an author or artist theexclusive right to sell, publish, or reproduce his or her workfor a specific number of years

h. producers’ use of modifications in quality and features to dis-tinguish products from similar goods and services

i. reduction of government regulation and control over businessactivity

j. extent to which competition prevails in a market

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9, A

13. Federal agencies actually decrease competition in an industry by

a. allowing foreign companies to compete in the United States.b. using antitrust legislation against monopolies.c. preventing the formation of conglomerates.d. creating legal barriers to entry in an industry.

14. All of the following are characteristics of a monopoly except

a. single seller. b. complete control of market price.c. barriers to entry. d. presence of many competing firms.

15. An example of antitrust legislation is the

a. Americans with Disabilities Act. b. Clayton Act.c. Wade Act. d. Truth in Lending Act.

CRITICAL THINKING QUESTIONS

Directions: Answer each of the following sets of questions on a separate sheet of paper.

16. Making Comparisons What is the difference between a horizontal and a vertical merger?

17. Predicting Consequences Is service and quality likely to be better in an industry dominated by a monopolyor in a perfectly competitive industry? Why?

APPLYING SKILLS

Sequencing and Categorizing Information

18. Which piece of legislation made it illegal to charge different buyers different prices?

19. Which piece of legislation banned monopolies?

20. Which piece of legislation made it illegal for a person to sit on the board of directors of a competitor?

Law Function

Sherman Antitrust Act (1890) Outlawed agreements and conspiracies that restrain interstatetrade. Made it illegal to monopolize or attempt to monopolizeany part of interstate commerce

Clayton Act (1914) Restricted price discrimination—the practice of selling thesame good to different buyers at different prices. Outlawedinterlocking directorates between competitors. Outlawed mergers that substantially reduce competition

Federal Trade Commission Act (1914) Established the Federal Trade Commission as an independentantitrust agency

Chapter 9 Test Form A

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9, A

C OMPETITION AND MONOPOLIES

RECALLING FACTS AND IDEAS

Multiple Choice: In the blank at the left, write the letter of the choice that best completesthe statement or answers the question.

11. Nonprice competition is a characteristic of both

a. monopolistic competition and an oligopoly. b. perfect competition and a pure monopoly.c. an oligopoly and perfect competition. d. monopolistic competition and pure monopoly.

12. One advantage of an oligopoly is

a. more stable prices. b. lower prices per product.c. fewer product offerings. d. better services.

A1. monopoly

2. patent

3. cartel

4. market structure

5. barriers to entry

6. antitrust legislation


8. oligopoly

9. deregulation

10. merger

USING KEY TERMS

Matching: Match each item in Column A with the items in Column B. Write the correctletters in the blanks.

Ba. obstacles to competition that prevent others from entering a

market

b. industry dominated by a few suppliers who exercise somecontrol over price

c. reduction of government regulation and control over businessactivity

d. government protection that gives an inventor the exclusiveright to make, use, or sell an invention for a specific numberof years

e. market situation in which there are numerous buyers and sell-ers, and no single buyer or seller can affect price

f. extent to which competition prevails in a market

g. laws passed by federal and state governments to prevent newmonopolies from forming and to break up those that alreadyexist

h. combined company that results when one corporation buysmore than half the stock of another and thus controls thesecond corporation

i. market situation in which a single supplier makes up an entireindustry

j. arrangement among a group of industrial businesses, often indifferent countries, to reduce international competition bycontrolling the price, production, and distribution of goods

232B

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Resource ManagerCHAPTER 9

You and your students can visit ett.glencoe.com—the Web site companion to Economics Today andTomorrow. This innovative integration of electronic andprint media offers your students a wealth of opportuni-ties. The student text directs students to the Web site forthe following options:

• Chapter Overviews • Student Web Activities

• Self-Check Quizzes • Textbook Updates

Answers are provided for you in the Web ActivityLesson Plan. Additional Web resources and InteractivePuzzles are also available.

Use the Glencoe Web site for additional resources. All essential content is covered in the Student Edition.

ECONOMICS

Application and Enrichment

Enrichment Activity 9

Teaching Transparency

Application and Enrichment

Review and Reinforcement

1. A condition in which the workings of supplyand demand control the market becausethere are many suppliers and many buyers ofa good or service

2. A condition in which a group buys or sellsenough of a good or service to control the market

3. Only one seller of a good or service exists;the local electric utility is an example.

4. Just a few sellers of a good or service exist;airlines are an example.

5. Emphasis on minor differences between products

6. An international monopoly

7. Laws to prevent monopolies or break them up

8. Occurs when one corporation buys more than 50 percent of the stock in another corporation

9. A corporation that has bought out manysmaller corporations having unrelated services or goods

10. When government reduces controls over business

a. antitrust legislation

b. cartel

c. conglomerate

d. deregulation

e. imperfect competition

f. merger

g. monopoly

h. oligopoly

i. perfect competition

j. product differentiation

C HAPTER 9 COMPETITION AND MONOPOLIESDirections: Read each vocabulary clue on the left, and then write the letter of the matching term in theblank space.

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Economic VocabularyActivity 9

232A

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D RAWING INFERENCES AND CONCLUSIONSDrawing inferences involves “reading between the lines,” or drawing conclusions that are notstated directly in the text. To draw inferences and make conclusions, read the informationcarefully and list the important facts. Then apply related information from other sources aswell as your own knowledge and insight to develop some conclusions about these facts.

Directions: Study the tables below and answer the questions that follow.

Source: World Development Indicators

1. Using these tables, what inference can you make about why infant mortality is high in Bangladesh?

2. What inference can you make about why the number of television sets per 1,000 people is higher in the UnitedStates and Finland than in Morocco and Bangladesh?

3. What inference can you make about why per capita consumption in Bangladesh is low?

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Infant Deaths per Number of Television Sets Private ConsumptionCountry 1,000 Live Births per 1,000 People per capita (dollars)

Bangladesh 79 7 1,049

Finland 5 519 11,431

Morocco 55 145 2,454

United States 8 776 18,507

Health Spending People per Gross National Product perCountry (percent of GNP) Hospital Bed capita (millions of dollars)

Bangladesh 2.4 5,479 240

Finland 8.3 93 20,580

Morocco 3.4 775 3,340

United States 14.3 221 26,980

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S UMMING UP CRITICISM OF OLIGOPOLISTSSummarizing information means reducing a long reading to its main ideas and importantfacts. The following passage is from a 1912 presidential campaign speech of Woodrow Wilson.In the speech, he attacked the American oligopolies of the early 1900s.

Directions: Read the following passage and write a summary of it on the lines below.

American industry is not free, as it once was free; American enterprise is not free; the man with only a little capital isfinding it harder to get into the field, more and more impossible to compete with the big fellow. Why? Because thelaws of this country do not prevent the strong from crushing the weak. That is the reason, and because the stronghave crushed the weak the strong dominate the industry and the economic life of this country. No man can deny that the lines of endeavor have more and more narrowed and stiffened; no man who knows anything about thedevelopment of industry in this country can have failed to observe that the larger kinds of credit are more and moredifficult to obtain, unless you obtain them upon the terms of uniting your efforts with those who already control theindustries of the country; and no one can fail to observe that any man who tries to set himself up in competition withany process of manufacture which has been taken under the control of large combinations of capital will presentlyfind himself either squeezed out or obliged to sell and allow himself to be absorbed.

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Critical Thinking Activity 8 Reteaching Activity 9

Reinforcing Economic Skills 16

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H OW GOVERNMENT AGENCIES AFFECT OUR LIVESFederal agencies try to maintain fair prices and the quality of products by establishing regulations. Every day, our lives are influenced by these regulations.

Directions: Read the following summary of one family’s activities on a Saturday. Then, for each activity,choose the agency whose regulations are involved in the situation. Write the name of the agency on theline next to the activity. Figure 10.14 in the textbook lists the agencies involved. Some situations mayinclude more than one agency.

7:30 A.M. Linda Lee is getting ready for her part-time job. However, thecurling iron she is using is not heating properly. She checks to see when the warranty runs out.

8:00 A.M. Over breakfast, Linda’s father shows the family the newly designed helmet he has to wear at the plant.

8:30 A.M. Linda’s mother backs her car out of the garage. The automatic garage door closes when she presses the button on the car’s radio transmitter.

9:30 A.M. Mr. Lee goes to the supermarket to do the food shopping. He checks the labels on several boxes of cereal to compare their nutritional content.

Noon At lunch hour Linda goes to an electronics store to buy a new stereo. This store’s ad seemed to give truthful, complete information.

2:00 P.M. Mr. and Mrs. Lee attend a special meeting at the town hall. The townspeople are attempting to clean up the pollution in a nearby lake.

4:00 P.M. Cable TV service has just come to the area. Linda’s younger sister enjoys the children’s programs that the community college produces for the cable company’s “public access” channel.

7:00 P.M. Linda’s parents watch a business report on the investigation of investment counselors accused of defrauding their customers.

Name Date Class

8

Market Number Ease of Entry Product Advertising Influenceof Firms Difference Over Price

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M ARKET CONDITIONSFour types of market conditions are characterized by different amounts and kinds of competition. They are perfect or pure competition, monopolistic competition, oligopoly, and monopoly.

Directions: In the chart below, the characteristics of perfect or pure competition are given. Fill in the information for the other three types of markets, and then answer the questions that follow.

Market Characteristics

1. If you owned a business and were concerned only with profits, which market would you like best? Why?

2. If you were starting a business, which market would you like best? Why?

3. As a consumer, which market would you like best? Why?

4. As a business owner, would you rather have oligopoly or monopolistic competition? Explain your answer.

5. If you owned an advertising agency, which market would you like best? Why?

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Perfect or pure unlimited easy none none nonecompetition

Monopolisticcompetition

Oligopoly

Monopoly

Economic Concepts 9

IMPORTANT CHARACTERISTICS OF MARKET STRUCTURES

Monopoly Oligopoly MonopolisticCompetition

PerfectCompetition

LeastCompetitive

• one seller

• complete price control

• very large barriers to market entry

• few sellers

• considerable price control

• large barriers to market entry

• many sellers

• little price control

• little barrier to market entry

MoreCompetitive

• very many sellers

• no price control

• no barriers to market entry

C OMPETITION AND MARKET STRUCTUREThe diagram illustrates different market structures.

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Economic Concepts Transparency 9

Consumer ApplicationsActivity 8

Free Enterprise Activity 6

C OMPETING IN THE MARKETPLACE

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Directions: Answer the following questions.

PURE COMPETITION

You raise flowers, and every Saturday, summer through fall, you set up at the farmer’s market in a nearby city to sell

them. In May and June, before your garden is in full bloom, you sell daffodils by the half dozen and dozen for $2.50

and $4.50, and dried flowers at $7.50 for a small bouquet and $12 for a large bouquet. You also sell dried wreaths

for $15. In July you begin to sell fresh mixed bouquets for $5 each. By August you can also offer gladiolas at $.75

each. In September you are left with the last of the fresh bouquets and dried flowers. You usually sell 15 half-dozen

bunches of daffodils and 25 dozen bunches, and each month that you offer fresh mixed bouquets, you sell about 24.

You can always count on selling out your entire crop of gladiolas, 100 in all. Every season you can also depend on

selling 20 dried wreaths and 20 small and 10 large dried bouquets. At these quantities and prices what is your usual

income for the season? (1)There are two flower vendors at the market. They sell for the same prices but have smaller gardens than you.

One takes in about three-quarters of your revenue, and the other about half. What is their combined income for the

season? (2)

MONOPOLY

You are a retired farmer, but you still want to participate at the weekly farmer’s market. You buy 100 hats that say

“Think Globally, Buy Locally” to sell there. Your total cost for the hats is $450. To break even, you must sell the hats

for (3) apiece. But since the hats are a new item at the market and you are the only seller,

you can charge as much as you want as long as people are willing to buy at the price you set. You try a different

price each year for 4 years to see what the market will bear. Each year you start with 100 hats. In addition to your

costs of $450 for the hats, you pay $25 for the market booth. Compute your profit or loss for each year by filling in

the chart below.

What is the highest price you can charge and still make a profit? (8)

OLIGOPOLY

The fifth year you are setting up at the market when you discover that someone else is selling the same type of hat

with “Market!” printed on it. They are planning to charge $7 a hat. You figure there is no way that you can charge

$10 and compete, so you drop your price to $9. You sell 50 hats, and the other vendor sells 90. What was your profit

for the season? The other vendor’s? (9)

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Price Quantity Sold Revenue � Cost � Profit(Loss)

(4) $8 100

(5) $9 95

(6) $10 90

(7) $12 20

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EXAMINING THE CARTOON

Multiple Choice

1. What does the cartoon imply about the outcome of the Justice Department’s lawsuit against Microsoft?

a. that they are doomed to failure b. that they will succeedc. that it will be difficult for them to win d. all of the above

2. A reasonable interpretation of the cartoon would be that the government

a. should not try to interfere in the economy. b. has difficulty controlling such a powerful company.c. is not competent enough to regulate the economy. d. is supportive of big business.

Critical Thinking

3. Analyzing the Cartoon Create an appropriate title or caption for the cartoon.

4. Expressing Your Opinion Do you think the cartoon is effective in making its point without text? Explain.

REAL GAME OF MONOPOLY?Microsoft Corporation is a computer industry giant. Its operating systems run more than 90 percent of the personal computers in the world. When Microsoft integrated its newest operatingsystem with its own Internet software, other software firms cried foul. They claimed thatMicrosoft was seeking to use its control of operating system software to gain control of the marketfor application programs. Was Microsoft becoming a monopoly? The Justice Department andmany states filed antitrust suits against Microsoft. Cartoonists took note.

Directions: Study the cartoon below. Then answer the questions that follow.

88

A

OLKIPHANTcUNIVERSAL PRESS SYNDICATE. Reprinted with permission. All rights reserved.

Clearly drivers are often at fault. That’s primarilybecause air bags are designed to work in conjunction withseat belts, and drivers often don’t buckle up properly ordon’t insist their passengers do. . . . Says Chuck Hurley, aspokesman for the National Safety Council, a nonprofitgroup, “Those who say you can solve this problem withtechnology alone are wrong. Those who say you can do itentirely with behavioral changes are wrong. It will take acombination of improved technology and proper belt useto bring about greater safety. . . .”

One reason so many short women and children havebeen air bag victims is the way crash tests are conducted.A 1984 Federal rule requires automakers to ensure thatpassenger-safety devices will protect an average-size 165-pound unbelted male in a 30 mph crash into a solid wall.To meet that standard, most car companies have installedair bags that deploy with fearsome force at crash speedsas low as seven or eight mph. . . .

Some consumer groups initially fought the issuanceof explicit air-bag warning labels on cars, on the groundsthat such labels would unduly scare the public and turn itagainst air bags. Despite an Urgent Action recommenda-tion by the National Transportation Safety Board inNovember 1995, NHTSA failed to require explicit air-bagwarnings until February 1997, seven years after the firstair-bag fatality. . . .

Another reason families haven’t been sitting safely incars and minivans: materials published by automobile com-panies. At least one carmaker has promoted its new airbag-equipped vehicles in material featuring children in thefront passenger seats, smack in front of the air bags. . . .

[On the positive side,] five technological changes [arecurrently in development which] will likely make air bagssafer. NHTSA is now letting auto companies producedepowered bags, which automatically reduce the initialdeployment force by 20 percent to 35 percent. . . . Anincreasing number of new vehicles contain side air bags[which are] quite useful because so many crashes involveside collisions. . . . One of the most promising technolog-ical advances is the dual-threshold bag. Its sensorsautomatically determine whether an occupant is beltedand adjust the bag’s deployment force accordingly. . . .

A belt pretensioner is another safety feature availablein many new models. . . . This device instantly tightens theshoulder strap on impact to prevent the occupant fromflying towards the bag as it deploys. [Lastly,] automakersand their air bag suppliers are working feverishly to per-fect the “smart bag,” whose sensors would detect notonly whether an occupant was belted but also her weightand position. Dowd, Ann Reilly. “The Truth About Airbags”Good Houskeeping, October 1998.

18 Primary and Secondary Source Readings

ANALYZING THE READING

1. What happened to Alison Sanders as a result of an air bag? Why was her mother angry?

2. How did the major automobile manufacturers respond to increasing consumer concern about air bags?

3. How many governmental and nonprofit consumer protection agencies were mentioned in the article? What doestheir existence suggest about the power of the consumer in America today?

4. What technological developments have automobile manufacturers been working on to increase the safety ofairbags?

5. Should consumers or manufacturers take responsibility for the safety of a product? Explain your answer.

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Cooperative Learning Simulations and Problems 8

Primary and Secondary Source Reading 9

Math Practice for Economics Activity 7

Economic Cartoons Activity 8

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A NTITRUST LEGISLATION

GROUP PROJECT

Since the late 1800s, the United States Congress has passed many laws, known collectivelyas antitrust legislation, to help maintain competition in the marketplace. These laws enablethe government to regulate or break up monopolies, combinations, and trusts that hindercompetition. In the activity that follows, your group will suppose that you are staffresearchers and speech writers for a member of Congress. Your job is to construct a case for one of the pieces of antitrust legislation listed in your textbook. Use the questions below as a guide in building your argument.

▼MATERIALS:

Library resources such as legal reference books and Congressional histories

▼FOCUS QUESTIONS

• What would this law prohibit?

• What effect would the proposed legislation have on each type of market structure?

• How would the law maintain competition in the marketplace?

• How would failure to pass the law affect the marketplace?

• Should the government be responsible for protecting the consumer? For promoting competition? If not,who should have this responsibility?

1. Group Work Stage 1: Students work in groups offive or more. From the list in your textbook, decideon which piece of antitrust legislation the groupwill focus. Assign to members of the group the rolesof a member of Congress, researchers, and speechwriters.

2. Individual Work Stage 2: Students work as individuals. Researchers should gather informationfrom the textbook and library resources to preparewritten answers to the questions above. Summarizeyour research in brief paragraphs.

3. Paired Work Stage 3: Students work in pairs.Using the paragraphs prepared by the researchers,speech writers work in pairs to prepare either athree- or a five-minute speech promoting the legislation. The three-minute speeches are to beaddressed to other members of Congress. The five-minute speeches are for the public.

4. Individual Work Stage 4: Students work as indi-viduals. The assigned member of Congress reviewsand edits the speeches, then practices delivery.

5. Group Work/Analysis Stage 5: Students return to the original group. In preparation for actualdelivery, the Congressperson gives the speechesbefore staff members in the group. They offer criticism and coaching, which the Congresspersonimplements in a second practice session. Then alldesignated members of Congress deliver theirspeeches before the whole class. The class followsup each speech with discussion about the necessityof the proposed law, playing the role of eitherCongress or the general public.

Group Process QuestionsWere the goals of the assignment clear?

Did the group agree on the assignment of tasks?

Did members give helpful criticsm?

Did members respect each other’s viewpoints?

COOPERATIVE GROUP PROCESS:

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t was the kind of crisp autumn Sunday that makes youfeel like all’s right with the world. Robert Sanders, then 45,had spent a glorious weekend in Baltimore with his sons,David, 9, and Matthew, 10, and his 7-year-old daughter,Alison. . . . But as Robert was driving back to Washington,D.C., to drop off his children at his ex-wife’s home onOctober 15, 1995, their lives were changed forever.

Less than a half a mile from Robert’s house, the boys,who were in the backseat, wanted to hear the Redskinsfootball game on the radio. As Alison, who was sitting inthe front passenger seat, flipped off her shoulder strap toreach for the dials, Robert remembers telling her: “Sitback. Put your shoulder strap on. I’ll find the game.” Butas he fiddled with the radio, a traffic light turned red, andRobert was unable to stop in time. His minivan skiddedinto a van that had paused in the intersection waiting toturn left. In a flash, both his front air bags deployed.

Robert’s first thought was that he’d need to havesome bodywork done on his brand-new minivan. Butwhen the smoky powder released with the air bagscleared, he was horrified to find Alison lying sideways onthe seat and unconscious. The ferocious force of theexploding bag had left the child his ex-wife Beth describedas “a ray of sunshine” instantly brain-dead. . . . By thenext morning, Alison’s parents were in an emotional dark-ness they are still struggling to [escape]. For her part, Bethis angry. “We should have been warned that the frontseat was not a safe place for a child,” she says. “Puttingkids in front of an air bag is like putting them in front ofa loaded gun.”

Even more horrifying, three years after Alison’s death,children and small adults are still being killed by air bagsin low-speed crashes that would otherwise result in just afew scrapes and dents that could be fixed at the bodyshop. The National Highway Traffic Safety Administration

(NHTSA) says 108 people have died in air bag-related acci-dents—63 children and 45 adults—since the mid-1980s,when airbags first appeared in cars. (They became manda-tory in September 1997.) The agency is investigatinganother 30 deaths. In the same period, another 27 peoplehave been seriously injured.

air bags are designed to work in

conjunction with seat belts, and

drivers often don’t buckle up

properly or don’t insist their

passengers do. . . .

Some safety experts insist that this is just the tip ofthe iceberg, that many more people have been seriouslyinjured by air bags. In mid-July, General Motors recallednearly one million Cadillacs, Chevrolets, and Pontiacs afterreports of almost 100 injuries occurring when their airbags burst without crashes. What’s more, NHTSA is inves-tigating similar problems in Chryslers, Mazdas,Mitsubishis, and Subarus. And with one million new airbag-equipped cars coming on the road each month, thetoll is likely to rise.

Why are so many dying so horribly? Is it greed on thepart of auto companies and the complicity of governmentregulators, as many consumer advocates charge? Or is itthe irresponsibility of drivers who either put children in thefront seat or fail to buckle them up, as many automakersmaintain? . . .

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Primary and Secondary Source Readings 17

Name Date Class

T HE TRUTH ABOUT AIR BAGSIn recent years, Americans have become more demanding about the safety and qualityof the products they purchase. As consumers, we have come to expect that the productswe buy will adhere to certain minimum standards and will live up to the promisesmade by manufacturers and advertisers. There now exist numerous public and privateagencies that monitor the safety and quality of goods on the market to protect consumerinterests and heighten public awareness. The article below discusses how one product, automo-bile air bags, was discovered to be unsafe for children. Read the excerpt and consider how theautomobile industry responded to consumer concerns. Then answer the questions that follow.

9

I

http://ett.glencoe.com

Block Schedule

Voluntary Standards Emphasized in Chapter 9Content Standard 9 Students will understand that com-petition among sellers lowers costs and prices, and encour-ages producers to produce more of what consumers arewilling and able to buy.

Content Standard 16 Students will understand thatthere is an economic role for government to play in a marketeconomy whenever the benefits of a government policy out-weigh its costs.

Resources Available from NCEE• Capstone: The Nation’s High School Economics Course• Focus: High School Economics• MCG—Economics and Entrepreneurship• Economics in Transition: Command to Market• From Plan to Market

To order these materials, or to contact your StateCouncil on Economic Education about workshops andprograms, call 1-800-338-1192 or visit the NCEE Web siteat http://www.nationalcouncil.org

Wendy S. FieldSCT BOCES Technical-

Occupational CenterElmira, New York

Medical CenterHave students develop a private medical business. Their

outline should include a marketing plan that includes a com-petitor analysis; a financing plan that explains the costs ofrunning the business; a staffing plan that lists needs versuscosts; and a supplier plan that lists the medical suppliesneeded as well as general items such as business cardsand filing cabinets.

Students must then research the aspects of governmentinvolvement in their medical business. Zoning regulationsand environmental protections must be researched. In addi-tion, students can use the Internet to find what local, state,and federal OSHA regulations must be met. Have studentsshare their plans in an oral report.

ACTIVITYFrom the Classroom ofACTIVITYFrom the Classroom of

Activities that are particularly suited to use within the blockscheduling framework are identified throughout this chapterby the following designation: BLOCK SCHEDULING

Block Schedule

Use Glencoe’s Presentation Plus!,a Microsoft PowerPoint® application,to teach Competition andMonopolies. With this multimedia

teacher tool, you can customize ready-made presentations.At your fingertips are interactive transparencies, on-screenlecture notes, audiovisual presentations, and links to theInternet and to other Glencoe multimedia.

Interactive Lesson PlannerPlanning has never been easier! Organize your week, month, semester, or year with all the lesson helps you need to make teaching

creative, timely, and relevant—the way it is meant to be.The Interactive Lesson Planner opens Glencoe’s Chapter 9resources, helps you build your schedule, and tracks yourprogress.

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


Teaching strategies have been coded for varying learning styles and abilities.L1 BASIC activities for all studentsL2 AVERAGE activities for average to above-average

studentsL3 CHALLENGING activities for above-average students

ENGLISH LANGUAGE LEARNER activitiesELL

Key to Ability Levels

Easy Planning and Preparation!

232D

■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ ■


232C

Blackline Master

Transparency

Software

CD-ROMVideodisc

Audiocassette

Videocassette

Reading Objectives Reproducible Resources Technology/Multimedia Resources

Section 1Perfect Competition• What are the five conditions of perfect

competition?• Why is agriculture often considered an

example of perfect competition?• How does perfect competition benefit

society?

Section 2Monopoly, Oligopoly, MonopolisticCompetition• What are four characteristics of a pure

monopoly?• What characterizes an oligopoly?• What are five characteristics of

monopolistic competition?

Section 3Government Policies TowardCompetition• What is the difference between

interlocking directorates and mergers?• What is the purpose of federal

regulatory agencies?• How has some regulation hurt

consumers?

Reproducible Lesson Plan 9-1Daily Lecture Notes 9-1Guided Reading Activity 9-1Reading Essentials and Study Guide 9-1Daily Focus Activity 20Section Quiz 9-1*Reinforcing Economic Skills 16

Reproducible Lesson Plan 9-2Daily Lecture Notes 9-2Guided Reading Activity 9-2Reading Essentials and Study Guide 9-2Daily Focus Activity 21Section Quiz 9-2*

Reproducible Lesson Plan 9-3Daily Lecture Notes 9-3Guided Reading Activity 9-3Reading Essentials and Study Guide 9-3Daily Focus Activity 22Section Quiz 9-3*

Daily Focus Transparency 20

Economic Concepts Transparency 9Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz

NBR's Economics & You*Presentation Plus!


Daily Focus Transparency 21Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz



Daily Focus Transparency 22Vocabulary PuzzleMakerInteractive Tutor Self-Assessment SoftwareMindJogger Videoquiz



*Also available in Spanish

Section Resources

http://www.nationalcouncil.org

233

233Compet i t ion and Monopol ies

Terms to Know• market structure• perfect competition

Reading Objectives1. What are the five conditions

of perfect competition?

2. Why is agriculture oftenconsidered an example ofperfect competition?

3. How does perfect competi-tion benefit society?

READER’S GUIDE

1

market structure: the extent to which competition prevails in particular markets

BUSINESS WEEK, MARCH 22, 1999

By December, Boston could get a lot closer to NewYork and Washington—at least by train. That’s when

Amtrak’s new high-speed rail ser-vice, dubbed Acela, will start oper-ating. With Acela, some NewYork–Boston trips will take just 3 hours, vs. 41/2 now. And all newtrains will have computer jacks andfood service. Amtrak aims to com-pete head-on with airline shuttles.

Competition—one of the basic characteristics of our marketeconomic system—is advantageous to consumers for sev-eral reasons. First, it provides us with choices. As noted in

the Cover Story above, people traveling from Boston to New Yorknow have a choice of going by plane or train. Competition isadvantageous for another reason as well. Having many competingsuppliers of a product leads to a surplus and, thus, lower prices.As you can imagine, for this reason each supplier would like tohave as little competition as possible.

Market StructureIn Chapter 8 you learned that businesses are set up based on

the number of owners—sole proprietorship, partnership, corpora-tion. In this chapter you’ll learn that businesses are also categorizedby market structure—or by the amount of competition they face.Figure 9.1 on page 234 shows the four basic market structures in

CHAPTER 9SECTION 1, Pages 233–237


Reproducible MastersReproducible Lesson Plan 9–1Reading Essentials and Study Guide 9–1Guided Reading Activity 9–1Section Quiz 9–1Daily Focus Activity 20Daily Lecture Notes 9–1

MultimediaDaily Focus Transparency 20Economic Concepts Transparency 9Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software

ExamView® Pro TestmakerMindJogger Videoquiz

NBR’s Economics & YouPresentation Plus!

SECTION 1 RESOURCE MANAGER

OverviewSection 1 explains or describes

perfect competition and the condi-tions that are needed for perfectcompetition to exist.

Answers to the Reading Objectivesquestions are on page 237.

Preteaching VocabularyAsk students to speculate on

the meaning of the terms marketstructure and perfect competition.Note students’ ideas on the board.Then have students compare theirdefinitions with those in theGlossary.

Vocabulary PuzzleMaker

READER’S GUIDE

232

Why It’s ImportantHow do airlines determine airfares? Why do farmers’ markets often charge the same price for their produce during the summer? This chapter will explain how competition—or the lack of it—determines the prices you pay.

To learn more about competi-tion, view the Economics & YouChapter 8 video lesson:Competition and Monopolies

Chapter Overview Visit the Economics Today and Tomorrow Web site at ett.glencoe.com and click on Chapter 9—Chapter Overviewsto preview chapter information.

IntroducingCHAPTER9

232

Chapter OverviewChapter 9 explains or describes

the influence of competition onsupply and demand and price, per-fect competition and pure monop-oly, oligopoly and monopolisticcompetition, and government regu-lation of business.

CHAPTER LAUNCH ACTIVITY

IntroducingCHAPTER9

Use MindJoggerVideoquiz VHS to previewChapter 9 content.

Introduce students to chaptercontent and key terms by havingthem access Chapter 9—ChapterOverviews at ett.glencoe.com

Tell students to imagine they want to buy a CD player. Ask them what factors theymight consider in making such a purchase. Note their responses on the board. Next,underscore responses such as price, quality, and special features and point out thatstudents assume they will have a choice of these items. Continue by mentioning thatthere is a choice in the market because companies compete for business. Have stu-dents consider what purchasing a CD player would be like if there were no competition.Conclude by informing students that they will learn about competition—and the lack ofcompetition—in the market in this chapter.

ECONOMICS & YOU

Competition and Monopolies

!7s~." Chapter 8 Disc 1, Side 1

ASK: What is likely to happento the prices of products andservices when competition islacking? Prices are likely toincrease.

Also available in VHS.

Project Daily FocusTransparency 20 and have students answer the questions.

This activity is also availableas a blackline master.

Daily Focus Transparencies

P ERFECT COMPETITION

1. Why do you think all of the apples have similar prices?

2. The land and equipment pictured on the left act as barriers thatmight make farming less than perfectly competitive. Why?

2020

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BELLRINGERMotivational Activity



235

entrance into the market. In addition, the initial costs ofinvestment are small, and the good or service is easy to learnto produce.

(4) Easily Obtainable Information Information about prices,quality, and sources of supply is easy for both buyers andsellers to obtain.

(5) Independence The possibility of sellers or buyers workingtogether to control the price is almost nonexistent.

No Control Over Price When the above five conditions aremet, the workings of supply and demand control the price, nota single seller or buyer. On the supply side, perfect competitionrequires a large number of suppliers of a similar product. On thedemand side, perfect competition requires a large number ofinformed buyers who know exactly what the market price is forthe good or service.

In a perfectly competitive market, the market price is theequilibrium price. Total supply and total demand are allowed tointeract to reach the equilibrium price—the only price at whichquantity demanded equals quantity supplied. In a world of per-fect competition, each individual seller would accept that price.Because so many buyers and sellers exist, one person charging ahigher or lower price would not affect the market price.

Information Is Key True perfect competition is rarely seen inthe real world. Nonetheless, fierce competition does exist in manysectors of the economy. While information about prices, quality,and sources of supply might have been hard and costly to obtain inthe past, that is not true today. Virtually anyone with access to theInternet can find out the lowest prices of just about anything.

Perfect CompetitionHaving a similar product andeasy entry into the market—suchas greenhouses do—are two conditions of perfect competi-tion. What three other condi-tions must be met for perfectcompetition?

9.29.2

235



Project Economic ConceptsTransparency 9 and have studentsdiscuss the accompanying questions.



234 CHAPTER 9

perfect competition: market sit-uation in which there are numer-ous buyers and sellers, and nosingle buyer or seller can affectprice

the American economy: perfect competition, monopolistic competi-tion, oligopoly, and monopoly. In this section you’ll learn about theideal market structure of perfect competition.

Conditions of PerfectCompetition

All businesses must engage in some form of competition aslong as other businesses produce similar goods or services.When a market includes so many sellers of a particular good or service that each seller accounts for a small part of the totalmarket, a special situation exists. Economists term it perfectcompetition. For perfect competition to take place, five condi-tions must be met:(1) A Large Market Numerous buyers and sellers must

exist for the product.(2) A Similar Product The good or service being

sold must be nearly identical. See Figure 9.2.(3) Easy Entry and Exit Sellers already in the

market cannot prevent competition, or

Comparing Market Structures Markets that are either perfectly competitiveor pure monopolies are rare. Most industries in the United States fit one of the othertwo forms.

PerfectCompetition

MonopolisticCompetition

Oligopoly

Monopoly

Most Competition Least Competition

FIGURE 9.1FIGURE 9.1

234

Guided PracticeL1 Classifying InformationReview the conditions of perfectcompetition with students. Then onthe board, construct a table with thefollowing column headings: “MarketSize,” “Product,” “Market Entry,”“Information,” “Control Over Price.”Call on volunteers to come to theboard and, in the appropriate col-umn, note the way these five condi-tions are reflected in perfectcompetition.

Ask students to studyFigure 9.1. Then ask studentswhat might be the advantages anddisadvantages of a perfectly com-petitive market.

L ECTURE LAUNCHERLAt one time, the Soviet Union believed that powerful computers might one day solve the allocation problems of a command economy. Ironically, today many people believe that theInternet offers a market structure that expediently offers the benefits of perfect competition.What are the conditions of perfect competition?

I. Market Structure

A. Market structures are a way to categorize businesses by the amount of competitionthey face.

B. Four basic market structures in the American economy are: perfect competition,monopolistic competition, oligopoly, and monopoly.

• Discussion Question

What types of business face strong competition? Why? (Businesses that have a productthat are in very high demand, business in which start-up costs are low, and business that haveworld-wide markets. Examples: Restaurants, retail stores, Internet search engines, softwarecompanies, computer companies, car companies, etc.)

II. Conditions of Perfect Competition

A M b d ll

9-1

PAGES 233–234

PAGES 234–235

Daily Lecture Notes 9–1

Learning Strategy Students with learning challenges often have difficulty applying learningstrategies in different situations. To help students use the “Survey, Question, Read, Recite,and Review” strategy, have them construct a chart with the following questions as columnheadings: “Did I skim for the title, headings, and main ideas?” “Did I ask questions?” “Did Ianswer my questions?” Work through the section with students. As they move through theprocedures, have them place a check mark in the appropriate column on their charts.

Refer to Inclusion for the Social Studies Classroom Strategies and Activities forstudents with different learning styles.

Meeting Special Needs

For use with the textbook pages 233–237

S TARTING A BUSINESS

OUTLINING

Directions: Locate the heading in your textbook. Then use the information under the heading to help youwrite each answer.

I. Market Structure

A. What is a market structure?

B. What are the four basic market structures in the American economy?

II. Conditions of Perfect Competition

A. Introduction

1. What is perfect competition?

2. What are the five conditions that must exist for perfect competition?

B. No Control Over Price

1. When the conditions of perfect condition are working, what controls the price of goods and services?

2. In a perfectly competitive market, what is the market price?

Name Date Class

9-1

Guided Reading Activity 9–1

ECONOMICS & YOU



ASK: Why does lack of compe-tition lead to higher prices?When competition is lacking, thepressure to compete is reduced.Prices for goods and services,therefore, are likely to go up.


Answer: a large market, easilyobtainable information about pricesand products, little possibility ofsellers and buyers working togetherto control price

Organize students into several small groups, and tell groups that they have been askedto prepare educational materials to teach the concept of perfect competition. Direct groupsto create wall charts, posters, or some other form of pictorial display on perfect competi-tion, using agriculture as an example. Call on groups to use their materials to teach theconcept to the rest of the class. BLOCK SCHEDULINGELL

Cooperative Learning

237


Benefits to SocietyThe intense competition in a perfectly

competitive industry forces the price downto one that just covers the costs of productionplus a small profit. This price is beneficialbecause it means that consumers are payingonly for what has been put in to make thoseproducts—the opportunity cost of the use of land,labor, capital, and entrepreneurship. The price thatconsumers pay for such products is a correct signalabout the value of those products in society.

Perfectly competitive industries yield economic efficiency. Allinputs are used in the most advantageous way possible, and societytherefore enjoys an efficient allocation of productive resources.

Agricultural Disasters Affect Supply Variations in weather, a cropdisease, or a crop-destroying insect can wipe out entire harvests. This means thatfarmers may have a good harvest one year and a poor harvest the next. As aresult, there are widely fluctuating supplies of goods in the agricultural market.

9.49.4

1

C09-05C

Understanding Key Terms1. Define market structure, perfect competition.

Reviewing Objectives2. Graphic Organizer Use a diagram like the

one below to explain the five conditions of per-fect competition.

3. Why is agriculture often considered an exampleof perfect competition?

4. How does perfect competition benefit society?

Applying Economic Concepts5. Perfect Competition Explain how a local

fast-food restaurant manager faces almost per-fect competition in the demand for high schoolemployee labor.

PerfectCompetition

6. Summarizing Information In this sec-tion, you learned that the Internet has madethe United States economy more competitive.Use a search engine to find informationabout the market price of your favoriteautomobile.

Critical Thinking Activity

Practice and assesskey skills with

Skillbuilder InteractiveWorkbook, Level 2.



ReteachTo reinforce students’ under-

standing of perfect competition,have them develop an annotatedoutline of this section.

1. All definitions can be found in the Glossary.2. Five conditions: a large market, a similar

product, easy entry and exit into the mar-ket, easily obtainable information, inde-pendence

3. Agriculture meets the conditions of perfectcompetition: many farmers and many buy-ers of farm products; farm products fairlysimilar; costs of renting farmland relatively

low, and farming methods can be learned;information about farm prices readily avail-able; possibility of thousands of farmersbanding together to control price very small.

4. Perfect competition encourages economicefficiency by forcing price down to where itcovers costs plus a small profit. This meansthat consumers are paying only what hasbeen put in to make those products.

5. The high school student labor pool is large;most students have similar qualifications;entry into the high school labor pool is easy;information about students’ qualificationsand wage requirements is readily available;it is unlikely that students would bandtogether to set wages.

6. Have students discuss the prices theyfound.

Ask students to write a para-graph using the following as a topicsentence: It is practically impossibleto meet all the conditions for per-fect competition.

Name Date Class

market structure The extent to which competition prevails in particular markets (page 233)

perfect competition A market situation in which there are numerous buyers and sellers. No single buyeror seller can affect price (page 234)

KEY TERMS

For use with textbook pages 233-237


DRAWING FROM EXPERIENCE

Have you ever played a game against someone with equal skill? Have you ever played againstsomeone that you dominated or who dominated you? How did your competitive feelings differ?Were you more or less likely to try different things to win?

In this section, you will learn about the ideal market structure of perfect competition.

ORGANIZING YOUR THOUGHTS

Use the diagram below to help you take notes as you read the summaries that follow. Thinkabout the characteristics of perfect competition.

9, 1

Conditions of

Reading Essentials and Study Guide 9–1



236 CHAPTER 9

Agriculture as an ExampleFew perfectly competitive industries exist in the United States.

The one that perhaps comes closest is the agricultural market. Itis often used as an example of perfect competition because indi-vidual farmers have almost no control over the market price oftheir goods. Figure 9.3 applies the five conditions of perfectcompetition to the wheat market.

No Control Over Wheat Prices No single farmer has anygreat influence on price. The interaction of supply and demanddetermines the price of wheat. The supply is the total supply ofall the wheat that farmers produce. The demand is the totaldemand for all uses of wheat. The equilibrium price is the pricewhere supply and demand intersect.

Individual wheat farmers have to accept the market price. Ifthe price is $3 per bushel, that is the price every farmer receives.Farmers who attempt to raise their price above $3 will find thatno one will buy their wheat. Neither will a farmer sell his or hercrop for less than $3 per bushel.

Unique Situation The demand for wheat and other agricul-tural products is somewhat different from the demand for manyother products. People’s demand for wheat is, for the most part,inelastic. People can use wheat in only so many ways, and peoplecan eat only so many wheat products. So even if the price of wheatwere to increase or drop dramatically, quantity demanded wouldnot change significantly. The supply side of most agricultural mar-kets is also unique. It is highly dependent on conditions overwhich farmers have little or no control, as shown in Figure 9.4.

The Wheat Market as a Perfect Competitor1. A Large Market Thousands of wheat farmers grow wheat, and thousands of

wholesalers buy wheat.2. A Similar Product All wheat is fairly similar.3. Easy Entry and Exit The costs of renting farmland are relatively low, and farm-

ing methods can be learned.4. Easily Obtainable Information Information about wheat prices is fairly easy to

obtain. Indeed, it can be obtained on the Internet in a few seconds.5. Independence The possibility of thousands of wheat farmers banding together

to control the price is very small.

9.39.3

236

IndependentPracticeL2 Applying Ideas Organize stu-dents into several groups. Tell groupsthat their task is to write a 45-secondto 1-minute radio advertisement thatexplains the benefits of perfect com-petition. Suggest that groups listen toexamples of radio ads before under-taking the task. Call on groups to“broadcast” their advertisements tothe class. BLOCK SCHEDULING

The demand curve for an indi-vidual business in a perfectly com-petitive market is a horizontal lineat the going market price. At thatprice, the business can sell all theoutput it wants.

Name Date Class

9, 1


Multiple Choice: In the blank at the left, write the letter of the choice that best completes the statement or answers the question. (10 points each)

6. In perfect competition, prices are controlled by

a. supply and demand. b. sellers.c. buyers. d. government.

7. For perfect competition to take place, the good being sold must

a. have few buyers. b. have few sellers.c. be similar. d. be difficult to produce.

SCORE

A1. market structure


3. large market

4. easy entry and exit

5. equilibrium price

Ba. situation in which numerous buyers and sellers exist

for a product

b. only price at which quantity demanded equals quantity supplied

c. situation in which the initial costs of investment aresmall

d. market situation in which no single buyer or sellercan affect price

e. extent to which competition prevails in particularmarkets

Matching: Place a letter from Column B in the blank in Column A. (10 points each)

Section Quiz 9–1

Graphic Organizer Have students create agraphic organizer titled “The Wheat Market—Perfect Competition.” Direct students to drawa web similar to the one here. The webshould have “The Wheat Market as PerfectCompetitor” written in the central oval.Students should complete the web by enter-ing the conditions of perfect competition in

the wheat market in the outer ovals.

Meeting LessonObjectives

Assign Section 1 Assessment ashomework or an in-class activity.

Use Interactive Tutor Self-Assessment Software to review Section 1.

237

239


Terms to Know• monopoly• barriers to entry• economies of scale• patent• copyright• oligopoly• product differentiation• cartel• monopolistic competition

Reading Objectives1. What are four characteris-

tics of a pure monopoly?

2. What characterizes an oligopoly?

3. What are five characteris-tics of monopolisticcompetition?

READER’S GUIDE

2

BUSINESS WEEK, FEBRUARY 1, 1999

When Gillette Co. unveiled Mach3, the world’s firsttriple-blade razor, it took a bold gamble. . . . Mach3

cartridges were to sell for around $1.60 each.Skeptics predicted the personal-care giant

would soon be forced to cut thatprice. But the price is holding and

Mach3 has become the No. 1 bladeand razor.

What’s the secret to pricing power?For starters, a commitment to innovation.

Gillette spent nearly $1 billion on the develop-ment and initial marketing of Mach3.

Imagine spending $1 billion on the development and advertis-ing of a razor blade—a common shaving tool. Would thatmuch advertising be worth it? It would if customers paid

whatever price you asked for the razors. As you read this section,you’ll learn that advertising plays a major role in two types ofmarket structures.

Imperfect CompetitionAs mentioned in Section 1, perfect competition is an ideal type

of market structure. Most industries in the United States, in




MultimediaDaily Focus Transparency 21Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software




OverviewSection 2 explains and describes

the concepts and characteristics ofpure monopoly, oligopoly, andmonopolistic competition.


Preteaching VocabularyList the Terms to Know on the

board. Have volunteers skim thesection to find each term and readand define it in context.


READER’S GUIDE

Critical

Thinking Skills

238

Critical Thinking Skills

Practicing the Skill

Read the passage below, then answer the questions.

“[A] landmark 1996 bill gave farmers the freedom toplant what they wanted, when they wanted. But it alsoswept away much of the financial safety net of price sup-ports for U.S. crops. . . . The next time agriculture hit adowndraft, would Washington really let the market work?

Dumb question. In 1999, Uncle Sam will dole out some$14.4 billion to farmers. . . .

This is no way to run farm policy. Indeed, it’s a simplelaw of economics that the prospect of bailouts in times oftrouble leads farmers to take more risks, such as plantingadditional, marginal acres. That makes the system lessefficient. . . .”—Business Week, June 28, 1999

1. What facts are presented in the passage?2. What can you infer about the occupation of the

passage’s author? Is he or she a farmer? Explain.3. Can you conclude that the agricultural sector is a

perfectly competitive market? Explain.

Application Activity

Apply the five conditions of perfect competition tothe soft drink industry. Would you conclude that it isperfectly competitive? Explain.

Drawing Inferences and Conclusions

• Read carefully for statedfacts and ideas.

• Summarize the informa-tion and list the importantfacts.

• Apply related informationthat you may alreadyknow to make inferences.

• Use your knowledge andinsight to develop someconclusions about thesefacts.



Learning the Skill

To learn how to make inferences and draw conclu-sions, follow the steps listed on the left.

To infer means to evaluate information and arrive at a conclusion. When you make inferences, you “readbetween the lines,” or draw conclusions that are not stated directly in the text.

238

Drawing Inferences and Conclusions

Write the following sentence onthe board, and tell students that itis a headline that might haveappeared in the sports pages of anewspaper: “Another Year ofFutility—Hawks Fail to Make thePlayoffs Again!”

Ask students what informationabout the team they can draw fromthe headline. Most students will inferthat it has been some time since theHawks had a successful season. Next,ask students to suggest how thewriter feels about the situation.Students may suggest that the writerseems upset or frustrated. Then pointout that in this exercise, studentshave been drawing inferences andconclusions—a key skill of criticalthinkers.

Glencoe SkillbuilderInteractive Workbook,Level 2

This interactive CD-ROM rein-forces student mastery of essen-tial social studies skills.

Answers to Practicing the Skill

1. A landmark bill, passed in 1996, gave farmers the freedom to plant what they want,when they want. In 1999, the federal government will give $14.4 billion to farmers.

2. The author is probably not a farmer. The author does not want to bail out farmers intimes of trouble.

3. Most students will conclude that it is not a perfectly competitive market, because gov-ernment policy interferes with the forces of supply and demand in price setting.

Application Activity Students’ research should lead them to understand that the softdrink industry in the U.S. is oligopolistic among the several large soft drink manufacturers.

D RAWING INFERENCES AND CONCLUSIONSDrawing inferences involves “reading between the lines,” or drawing conclusions that are notstated directly in the text. To draw inferences and make conclusions, read the informationcarefully and list the important facts. Then apply related information from other sources aswell as your own knowledge and insight to develop some conclusions about these facts.

Directions: Study the tables below and answer the questions that follow.

Source: World Development Indicators

1. Using these tables, what inference can you make about why infant mortality is high in Bangladesh?

Name Date Class

16

Infant Deaths per Number of Television Sets Private ConsumptionCountry 1,000 Live Births per 1,000 People per capita (dollars)

Bangladesh 79 7 1,049

Finland 5 519 11,431

Morocco 55 145 2,454

United States 8 776 18,507

Health Spending People per Gross National Product perCountry (percent of GNP) Hospital Bed capita (millions of dollars)

Bangladesh 2.4 5,479 240

Finland 8.3 93 20,580

Morocco 3.4 775 3,340

United States 14.3 221 26,980

Reinforcing Economic Skills 16




ONOPOLIES, OLIGOPOLIES, AND MONOPOLISTICCOMPETITION

1. Why does the government pass laws that reduce competition, asin the case of the U.S. Postal Service?

2. Why would the need for high-cost capital keep people from getting into a market such as the aluminum-producing industry?

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241

economies of scale: low pro-duction costs resulting from thelarge size of output

patent: exclusive right to make,use, or sell an invention for aspecified number of years

copyright: exclusive right to sell,publish, or reproduce creativeworks for a specified number ofyears

inefficiency of three or four competing water companies all tryingto lay water mains along your street.

Another barrier to entry is the cost of getting started. Called“excessive money capital costs,” this barrier is found in industriessuch as cars and steel, in which initial investment is high becauseof the amount and cost of the equipment. See Figure 9.6.

Ownership of essential raw materials can also provide a bar-rier to entry. A good example is the diamond industry. TheDeBeers Company of South Africa controls the marketing ofnearly all the world’s diamonds.

Types of Monopolies Pure monopolies can be separated intofour categories depending on why the monopoly exists. As shownin Figure 9.7 on page 242, the four types of monopolies are nat-ural, geographic, technological, and government.

In the past it was thought to be more efficient, or natural, tohave just one company providing a public good or service. Thisbelief led the government to grant exclusive rights to naturalmonopolies—providers of such things as utilities, bus service, andcable TV. The large size, or scale, of most natural monopoliesseemed to give them economies of scale—by which they couldproduce the largest amount for the lowest cost. It is now beingrealized that advances in technology can make these industriesmore competitive, however. Government is making moves toderegulate and open them up for competition.

A grocery store in a remote Alaskan village is an example of a monopoly caused by geographic factors. Because the potentialfor profits is so small, other businesses choose not to enter, thusgiving the sole provider a geographic monopoly. These types ofmonopolies are declining, however, as competition arises frommail-order and Internet catalogs and delivery services.

If you invent something, you are capable of having a technologicalmonopoly over your invention. A government patent gives youthe exclusive right to manufacture, rent, or sell yourinvention for a specified number of years—usually 17.Similarly, a United States copyright protects art,literature, song lyrics, and other creative worksfor the life of the author plus 50 years.

A government monopoly is similar to anatural monopoly, except the monopoly isheld by the government itself. The con-struction and maintenance of roads andbridges, for example, are the responsibilityof local, state, and national governments.

Barriers to Entry Hugestartup costs keep some busi-nesses from entering certainindustries.

9.69.6

241



L2 Demonstrating Ideas Afterreviewing the section with the class,organize students into several smallgroups. Assign each group one ofthe following market structures:monopoly, oligopoly, monopolisticcompetition. Ask groups to developa scenario, skit, or charade thatmight be used to teach the class themajor characteristics of theirassigned market structures. After thepresentations are completed, leadthe class in a discussion of the simi-larities and differences among thethree market structures.



240 CHAPTER 9

monopoly: market situation inwhich a single supplier makes upan entire industry for a good orservice with no close substitutes

barriers to entry: obstacles tocompetition that prevent othersfrom entering a market

contrast, represent some form of imperfect competition. Economistsclassify these three types of imperfect market structures as monop-oly, oligopoly, or monopolistic competition. They differ from oneanother on the basis of how much competition and control overprice the seller has.

MonopolyThe most extreme form of imperfect competition is a pure

monopoly, in which a single seller controls the supply of thegood or service and thus determines the price. A few such mar-kets do exist in the real world. As shown in Figure 9.5, somelocal electric utility companies are the sole providers for a com-munity. The consumers have no other option but to purchaseelectric power from these monopolies.

Characteristics of a Monopoly A monopoly is character-ized by four conditions:(1) A Single Seller Only one seller exists for a good or service.(2) No Substitutes There are no close substitutes for the good

or service that the monopolist sells.(3) No Entry The monopolist is protected by obstacles to com-

petition that prevent others from entering the market.(4) Almost Complete Control of Market Price By controlling

the available supply, the monopolist can control the marketprice.

In a pure monopoly, the supplier can raise prices without fearof losing business to competitors. Unless buyers choose to paythe new price, they have nowhere else to buy the good or service.A monopolist, however, cannot charge outrageous prices. Even ina monopolistic market, the law of demand is still operating. Asthe price of a good or service rises, consumers buy less.

Barriers to Entry If a monopoly is collecting all the profits ina particular industry, why don’t other businesses rush in to get ashare of those profits? As mentioned above, a monopoly is pro-tected by barriers to entry—obstacles that prevent others fromentering the market.

The most obvious barrier into a monopolistic market is a legal one. Some state laws, for example, prevent a competing electric, gas, or water company from operating in an area where a public utility company already provides service. The reasoningagainst competition in public utility industries is the fear that toomuch competition may lead to wasteful duplication. Imagine the

Local Electric CompaniesBecause some local electric utilitiesare the sole providers, and the con-sumer has no other option, they aremonopolies.

9.59.5

240

Guided PracticeL1 Classifying Information On theboard, construct a table with the fol-lowing vertical column headings:“Number of Sellers,” “Product,”“Entry Into Market,” “Control OverPrice.” Use “Monopoly,” “Oligopoly,”and “Monopolistic Competition” ashorizontal column headings. Havestudents compare these three typesof imperfect competition by complet-ing the table.

Have students study Figure 9.5.Ask them to read the paragraphsunder the subheading “Types ofMonopolies.” ASK: Which type ofmonopoly is Figure 9.5? naturalmonopoly

L ECTURE LAUNCHERLIn the mid-1800s, speculators would cut the telegraph wires connecting Boston to New York.When steamships came into Boston Harbor with information about events in Europe’s market,the telegraphs could not be sent. The speculators would arrange to have a horse and railexpress deliver the news to them first. What are some other ways that a business might try tocontrol a particular market.

I. Imperfect Competition

A. Most industries are a form of imperfect competition.

B. There are three types of imperfect competition that differ in how much competitionand control over price the seller has.


Why do you think that U.S. industries mainly have imperfect competition? (Answerswill vary, but should touch on the difficulty of perfect competition and how capitalisticeconomies create conditions for imperfect competition.)

II. Monopoly

A. Most extreme form of imperfect competition

9-2

PAGES 239–240

PAGES 240–243


Inefficient Readers Students often benefit from using a form of rapid reading, calledscanning, to locate specific information. Model the scanning procedure using the textunder the subheading “Barriers to Entry” on pages 240 and 241. Place your finger on thefirst line of text, and then move your finger down the middle of the column, noting thethree major barriers to entry as you go. Then have students practice the procedure byscanning the material under the subheading “Types of Monopolies” on page 241.



Name Date Class

For use with the textbook pages 239–246

ONOPOLY, OLIGOPOLY, AND MONOPOLISTICCOMPETITION

FILLING IN THE BLANKS

Directions: Use your textbook to fill in the blanks using the words in the box. Some words may be usedmore than once.

market price barriers to entry competitioncopyright oligopoly monopolynonprice competition cartel patentproduct differentiation monopolistic competition governmenteconomies of scale

Imperfect CompetitionPerfect 1 __________________________ is the ideal type of market structure. However, most market structures

represent imperfect competition. There are three types: 2 __________________________ , oligopoly, and

3 __________________________.

MonopolyThe most extreme example of imperfect competition is the pure 4 __________________________ , in which a single

seller controls the supply of the goods and services. Characteristics of a monopoly include a single seller, no substi-

tutes, no entry, and almost complete control of 5 __________________________. A monopoly is protected by

9-2

M


The Aluminum Company ofAmerica (ALCOA) provides anexample of how ownership ofessential raw materials can blockother companies from entering amarket. Around the turn of thetwentieth century, ALCOA con-trolled almost all the sources ofbauxite, the ore from which alu-minum is made. For many years,ALCOA maintained its nearmonopoly by refusing to sell baux-ite to potential competitors.

Organize students into several groups, and have groups select an oligopolistic industry.Have groups create a multimedia exhibit that illustrates how firms in their selected indus-tries practice product differentiation. Inform groups that their exhibits might include col-lages of magazine and newspaper advertisements, videotapes of televisionadvertisements, and audiotapes of radio advertisements. Encourage groups to displaytheir exhibits around the classroom. BLOCK SCHEDULINGELL


243


oligopoly: industry dominated bya few suppliers who exercisesome control over price

How Important Are MonopoliesToday? Monopolies are far less importantthan they once were. As noted earlier, geo-graphic monopolies have little effect becauseof potential competition from mail-orderbusinesses and electronic commerce on theInternet. Natural monopolies are being bro-ken up by technology and governmentderegulation.

Technological monopolies rarely lastlonger than the life of the patent—if eventhat long. Why? Competitors can make andpatent slight variations in new productsquickly. The microcomputer revolution inthe early 1980s followed such a pattern. Onecompany copied another’s product, makingchanges and adding features to obtain apatent of its own.

OligopolyUnlike a monopoly with just one supplier, an oligopoly is an

industry dominated by several suppliers who exercise some con-trol over price. For a market structure to be labeled an oligopoly,it must meet the following conditions:(1) Domination by a Few Sellers Several large firms are

responsible for 70 to 80 percent of the market.(2) Barriers to Entry Capital costs are high, and it is difficult

for new companies to enter major markets.(3) Identical or Slightly Different Products The goods and

services provided by oligopolists—such as airline travel,domestic automobiles, and kitchen appliances—are very similar.

(4) Nonprice Competition Advertising emphasizes minor differ-ences and attempts to build customer loyalty.

(5) Interdependence Any change on the part of one firm willcause a reaction on the part of other firms in the oligopoly.Figure 9.8 on page 244 shows a number of industries in

which the four largest firms produce more than 80 percent ofthe total industry output. All of these industries are oligopolies.

Oligopolies are not considered as harmful to consumers asmonopolies. Consumers may pay more than if they were buying ina perfectly competitive market. Oligopolistic markets, however, tendto have generally stable prices. They also offer consumers a widervariety of products than would a perfectly competitive industry.

Reducing PostalMonopolies

The monopoly that national postal services haveenjoyed is now being whittled away by technology.Overnight delivery companies such as Federal Express,Airborne, and United Parcel Service (UPS) offer fasterdelivery but at premium prices. And the widespreaduse of fax machines and electronic mail (E-mail) hasvirtually eliminated any remaining monopoly powerthat national postal services held. ■



L2 Applying Ideas Ask students tolocate a real example of one of thefour types of monopolies. Then havestudents write a case study compar-ing their selected example with an“ideal type” of monopoly. Call onvolunteers to share their case studieswith the class.



Types of Monopolies Monopolies exist for sev-eral reasons. Which type of monopoly, if any, doyou think is justified? Explain your response.

9.7

242 CHAPTER 9

B TechnologicalMonopoly

A Natural Monopoly

D Geographic Monopoly

C Government Monopoly

9.7

242

IndependentPracticeL1 Creating Posters Have studentswork in small groups to createposters that illustrate the four typesof monopolies. Display finishedposters around the classroom. ELL

Draw students’ attention to PartB in Figure 9.7. Remind studentsthat technological monopolies areestablished by governmentpatents. Then inform studentsthat during the 1990s, the U.S.Patent and Trademarks Officeissued an average of about117,000 patents each year.Answer: Answers may vary. Manystudents will suggest that because ofeconomies of scale, some naturalmonopolies and government monop-olies may be justified.

ECONOMICS & YOU



ASK: How is a monopoly differ-ent from an oligopoly? Amonopoly exists when only oneproducer of a product or serviceexists. An oligopoly exists whenonly a few producers compete ina market.


Ask students to identify several businesses in their community that are monopolisticcompetitors. Then organize the class into groups, and assign each group one of thesebusinesses. Have groups conduct research and interview company officers to discover thecompetitive strategies of their assigned companies. Have groups present their findings inthe form of brief written reports. Encourage groups to illustrate their reports with appropri-ate visual materials.

Free Enterprise ActivityThe HHI How do economists determine the level of competition in a market? They use ameasure called the Herfindahl-Hirschman Index (HHI). The HHI is calculated by totalingdata on the market shares of all companies in a market. The higher the HHI score, theless competitive the market. A review of the HHI shows that the least competitive indus-tries in the United States include airlines, automobiles and trucks, tobacco, brewing, snackfoods, and soft drinks.

Relevant Issues in Economics

Economic Connectionto... HistoryEconomic Connectionto...

Early Monopolies The Euro-pean shipping companies thatoperated under royal charters inthe 1500s and 1600s were amongthe earliest monopolies. Rulersgave these companies exclusiverights to trade in Asia and otherregions.

245


cartel: arrangement amonggroups of industrial businesses toreduce international competitionby controlling the price, produc-tion, and distribution of goods

monopolistic competition:market situation in which a largenumber of sellers offer similar butslightly different products and inwhich each has some controlover price

In contrast, if competing firms in an oligopoly secretly agree toraise prices or to divide the market, they are performing an illegalact called collusion. Heavy penalties, such as fines and even prisonterms, are levied against companies found guilty of collusion inthe United States.

Cartels An important form of collusion is the cartel. A cartel isan arrangement among groups of industrial businesses, often indifferent countries, to reduce international competition by con-trolling price, production, and the distribution of goods. Suchfirms seek monopoly power.

Monopolistic CompetitionThe most common form of market structure in the United

States is monopolistic competition, in which a large number ofsellers offer similar but slightly different products. Obvious exam-ples are brand-name items such as toothpaste, cosmetics, anddesigner clothes. To be a monopolistic competitor, five conditionsmust be met:(1) Numerous Sellers No single seller or small

group dominates the market.(2) Relatively Easy Entry Entry into the mar-

ket is easier than in a monopoly or oligopoly.One drawback is the high cost of advertising.

(3) Differentiated Products Each suppliersells a slightly different product to attractcustomers.

(4) Nonprice Competition Businesses competeby using product differentiation and byadvertising.

(5) Some Control Over Price By building aloyal customer base through product differ-entiation, each firm has some control overthe price it charges.

Many of the characteristics of monopolisticcompetition are the same as those of an oligop-oly. The major difference is in the number of sell-ers of a product. As you recall, in an oligopoly afew companies dominate an industry, and con-trol over price is interdependent. Monopolisticcompetition has many firms, no real interde-pendence, and some slight difference amongproducts.

Job Description■ Create art

using print,electronic, andfilm media tomeet client’sneeds

■ Create promo-tional displays,marketingbrochures, andtelevisiongraphics

Qualifications■ Bachelor’s

and/or master’sdegree in finearts

■ Training incomputerdesign techniques

Starting Salary: $25,000

Job Outlook: Good

CAREERSGraphic Artist

—Occupational Outlook Handbook, 1998–99








244 CHAPTER 9

product differentiation: manu-facturers’ use of minor differencesin quality and features to try todifferentiate between similargoods and services

Product Differentiation We mentioned earlier that oligopo-lists engage in nonprice competition. What does this mean? Let’suse automobiles as an example. Several large auto manufacturershave an oligopoly on the domestic car market. They all make cars,trucks, and sport utility vehicles. However, they spend millions, ifnot billions, of advertising dollars per year to differentiate theirproducts in your mind—and to win your consumer dollars.

The price you pay for brand names is not just based on supplyand demand. Rather, it is based on product differentiation—thereal or perceived differences in the good or service that make itmore valuable in consumers’ eyes.

Interdependent Behavior With so few firms in an oligopoly,whatever one does, the others are sure to follow. When one airlinecuts its airfares to gain market share, for example, the other majorairlines lower theirs even more. Although this type of price war isinitially good for consumers in the form of lower prices, it mayforce an airline out of business if prices drop too much. Fewer air-lines lead to less competition, which raises prices in the long run.

Ind

ust

ry

Percentage of Value of Total Domestic Shipments Accountedfor by Top Four Firms in Industry

Domestic MotorVehicles 90%

87%

85%

82%

74%

50 55 60 65 70 75 80 85 90 95 100

BreakfastCereals

Soft Drinks

TobaccoProducts

PrimaryAluminum

Selected Oligopolies

Source: U.S. Bureau of the Census

Oligopolies Oligopolies exist in a number of industries throughout theUnited States. Here several industries are highlighted.FIGURE 9.8FIGURE 9.8

244

ASK: How do oligopolistscompete? through nonprice compe-tition, or product differentiationOffer aspirin as an example ofproduct differentiation. Point outthat all aspirin tablets are madefrom the same ingredients. Oftena drug company, through adver-tising, leads consumers to believethat its aspirin brings greater orfaster pain relief than a competi-tor’s brand.

OPECAmong the best-known cartels

is the Organization of PetroleumExporting Countries (OPEC).Formed in 1960, OPEC is anassociation of 11 oil producingand exporting countries—Algeria,Libya, Nigeria, Indonesia, Iran,Iraq, Kuwait, Qatar, Saudi Arabia,the United Arab Emirates, andVenezuela.

Cartels Cartels usually are successful when they sell a product that has inelasticdemand—oil, for example. However, the success of a cartel is not guaranteed. It is rela-tively easy for members to violate any one of the price, production, or distribution condi-tions agreed to by the cartel. For example, the Organization of Petroleum ExportingCountries (OPEC)—the oil cartel—has found it increasingly difficult to control world oilprices because a number of its members regularly exceed the agreed output levels.

Extending the Content

M ONOPOLY, OLIGOPOLY, AND MONOPOLISTIC COMPETITION


6. The most extreme form of imperfect competition is

a. oligopoly. b. cartel.c. monopolistic competition. d. pure monopoly.

7. Which of the following is a characteristic of a pure monopoly?

a many sellers of the good or service b many substitutes for the good or service

SCORE

A1. monopoly

2. patent

3. copyright

4. oligopoly

5. cartel

Ba. industry dominated by a few suppliers who exercise

some control over price

b. arrangement among groups of industrial businessesto reduce international competition

c. author’s right to sell, publish, or reproduce his or herworks for a specified number of years

d. market situation in which a single supplier makes upan entire industry

e. inventor’s exclusive right to make, use, or sell aninvention for a specified number of years


Name Date Class

9, 2

Section Quiz 9–2

Synthesizing Information Point out that advertising employs a variety of methods topersuade consumers to buy products. These methods include humor, celebrity endorse-ments, and appeals to fear. You might provide the following examples: Humor—a childrunning from room to room while unraveling a toilet roll to advertise a new “extra strength”toilet tissue. Celebrity Endorsement—a baseball star stating that a particular make of caris the “only one” for him. Appeals to Fear—pictures of young children playing while avoice-over says, “Who’ll care for them when you’re gone?” to sell life insurance. Have stu-dents create their own examples of these three kinds of advertising persuasion.


SPOTLIGHT

247

SPOTLIGHT ON THE ECONOMY

A ir Jordanshoes. Martha

Stewart towels.Now, how’s this for the latest incelebrity branding?Mario Andrettiunleaded. Yes, the58-year-old retiredracing legend islicensing his nameto Texaco gas sta-tions on the WestCoast in the hopesof eventually takingthe Andretti gasbrand nationwide.

The first 37,000-square-foot Andretti mega-station opened in SanFrancisco in January. It has 10 gas pumps, aswell as a Burger King and Starbucks, which leasespace from Mario Andretti Petroleum LP. In com-ing months, Texaco will put the Andretti label onfive existing California gas stations, adding“Winning Finish” car washes and “Quick Pit”service bays, branding exclusive to Andretti.

Celebrity evidently sells well. Sales at theSan Francisco flagship already total 80% offirst-year projected revenues of $5 million, saysthe partnership. The gas isn’t any better thanrivals’, admits Andretti. But he boasts that theservice is. The Indy 500 champ regularly visitshis namesake station to make sure. He some-times even lends a hand to surprised motorists.“I’ll pump your gasand clean your wind-shield, no problem,”he says. Now, if hewould only drivefolks home in theevening rush . . .—Reprinted from March 8,

1999 issue of BusinessWeek by specialpermission, copyright ©1999 by The McGraw-Hill Companies, Inc.

Think About It1. Are goods or

services moreimportant atAndretti’smega-station?

2. How doesAndretti dif-ferentiate hisproducts from others?

Check It Out! In this chapter, you learned that oligopo-lists and monopolistic competitors use product differ-entiation to attract customers. In the following article,read to learn how one celebrity puts nonprice competi-tion to work for him.

Celebrity Can Really Be a GasCelebrity Can Really Be a Gas


Mario Andretti

Answers to Think About It1. services; Andretti freely admits that the product he sells—gasoline—is no better than

that of his rivals.2. by using his celebrity as a former racing car champion

Point out that celebrity endorse-ment is a popular advertising toolfor many companies. They willinglypay millions of dollars to celebritiesfor the right to use their faces ornames to sell products. Have stu-dents identify several celebrities andthe products they endorse. Then askstudents if, and why, they might beinfluenced to buy because of acelebrity endorsement.

Mario Andretti and his sonMichael—also a race car driver—are involved in several other auto-related businesses. These includeAndretti Enterprises, which pro-vides materials and services tomore than 450 car wash opera-tors in the eastern United States,and the Race Rock Cafes, restau-rants in Orlando and Las Vegasthat have a “racing car” theme.

To find up-to-date news andanalysis on the economy, busi-ness, technology, markets,entrepreneurs, investments,and finance, have studentssearch feature articles and spe-cial reports on the BusinessWeek Web site.www.businessweek.com


CHAPTER 9SECTION 2, Pages 239–246 Advertising Competitive advertising is even more important in

monopolistic competition than it is in oligopolies. As shown inFigure 9.9, advertising attempts to persuade consumers that theproduct being advertised is different from, and superior to, anyother. When successful, advertising enables companies to chargemore for their products. That’s why companies like Nike, TheGap, and Procter & Gamble pour millions of dollars into theiradvertising budgets every year.

246 CHAPTER 9

Advertising Ads lead to prod-uct differentiation and competitionfor consumer dollars. Businessesalso compete for shelf space—spaceon store shelves for displaying theirproducts and attracting buyers.

9.99.9

Understanding Key Terms1. Define monopoly, barriers to entry, economies

of scale, patent, copyright, oligopoly, productdifferentiation, cartel, monopolistic competition.

Reviewing Objectives2. What are the four characteristics of a pure

monopoly?

3. What characteristics of an oligopoly allow it tohave a limited control over price?

4. Graphic Organizer Use a chart like the onein the next column to compare a monopolisticcompetitor to an oligopoly in regard to thesecategories: number of sellers, difficulty of mar-ket entry, product differentiation, nonprice com-petition, and amount of control over price.

Applying Economic Concepts5. Product Differentiation Give three exam-

ples of products you have bought recently basedon advertising, not price. How does your con-sumer behavior justify product differentiation?




2

6. Synthesizing Information Develop aprint or video advertisement using yourselfas the hardworking product. Use product dif-ferentiation to explain why an employeeshould “purchase” you.

Category Monopolistic Competition Oligopoly

246

ReteachHave students write five ques-

tions about the section. Then askstudents to exchange questions andwrite answers to the questions theyreceived.

Ask students which of the threemarket structures discussed in thissection they think is the most bene-ficial for consumers. Have themexplain their answers.

Name Date Class

monopoly A market situation controlled by a single supplier of a good or service that has no close substi-tute (page 240)

barriers to entry Obstacles to competition that prevent others from entering into a market (page 240)

economies of scale Long-run average costs of production decrease as a result of large size or scale ofoutput (page 241)

patent A government protection given to an inventor. The inventor receives exclusive rights to make, use,or sell an invention for a specified number of years (page 241)

copyright A government protection that allows authors or artists the exclusive right to sell, publish, orreproduce their works for a specified number of years (page 241)

oligopoly Industry dominated by a few suppliers who exercise some control over price (page 243)

product differentiation Manufacturers try to differentiate their product from others by emphasizingminor differences in quality and features (page 244)

cartel An arrangement among groups of industrial businesses, often in different countries, to reduce inter-national competition by controlling the price, production, and distribution of goods (page 245)

monopolistic competition A market situation in which a large number of sellers offer similar but slightlydifferent products. Each seller has some control over price (page 245)

KEY TERMS

For use with textbook pages 239–246

M ONOPOLY, OLIGOPOLY, AND MONOPOLISTICCOMPETITION


9, 2


While students are studyingFigure 9.9, point out that a cos-metics company may produce sev-eral product lines. Each line isaimed at a different market seg-ment. By having several lines, thecompany competes with othercompanies in several areas of thecosmetics market.

1. All definitions can be found in the Glossary.2. single seller, no substitutes, no entry into mar-

ket, control over price3. domination by a few sellers, substantial barri-

ers to entry into market, similar products, prod-uct differentiation, interdependent behavior

4. See next column.5. Answers will vary.6. Advertisements will vary. Encourage students

to share their advertisements with the class.

4. Monopolistic Category Competition OligopolyNumber of Sellers Many FewDifficulty of Market Easy DifficultEntryProduct Differentiation A Fair Amount A Fair AmountNonprice Competition A Fair Amount A Fair AmountAmount of Control Limited SomeOver Price

http://www.businessweek.com

249

interlocking directorate: aboard of directors, the majority ofwhose members also serve asthe board of directors of a com-peting corporation

antitrust legislation: federaland state laws passed to preventnew monopolies from formingand to break up those thatalready exist

merger: a combined companythat results when one corporationbuys more than half the stock ofanother corporation and, thus,controls the second corporation

T he rise of monopolies in the late 1800scontributed to the development of a

new kind of journalism—muckraking. Themuckrakers wrote stories exposing corrup-tion in business and politics. One of themost famous muckrakers was Ida Tarbell.She wrote a series of articles that attackedJohn D. Rockefeller’s monopoly, theStandard Oil Company.

In great detail, Tarbell showed howRockefeller used unfair practices to drivehis competitors out of business. She evenlikened Rockefeller to a crooked gambler:“Mr. Rockefeller has systematically playedwith loaded dice. . . . Business played inthis way . . . is fit only for tricksters.” Tar-bell’s words led to a government investiga-tion of Standard Oil’s business practices. ■

Economic Connection to... LiteratureEconomic Connection to...

the board of a competing corporation. Because the same group ofpeople, in effect, controlled both companies, it was less temptingfor them to compete with one another. This practice of creatinginterlocking directorates was perfected by Rockefeller.

Sherman Antitrust Act Public pressure against Rockefeller’smonopoly, or trust, over the oil business led Congress to pass theSherman Antitrust Act in 1890. The law sought to protect tradeand commerce against unlawful restraint and monopoly. TheSherman Act was important antitrust legislation, or laws toprevent new monopolies or trusts from forming and to break up those that already exist.

Clayton Act Because the language in the Sherman Act was sovague, a new law was passed in 1914 to sharpen its antitrust provi-sions. The Clayton Act prohibited or limited a number of very spe-cific business practices that lessened competition substantially.The Clayton Act, however, does not state what the term substan-tially means. As a result, it is up to the federal government to makea subjective decision as to whether the merging of two corpora-tions would substantially lessen competition. Figure 9.10 onpage 250 details the Clayton Act and other antitrust legislation.

MergersMost antitrust legislation deals with restricting the harmful

effects of mergers. A merger occurs when one corporation joins


MuckrakersMuckrakers



Guided PracticeL1 Identifying Ideas Ask studentsto identify the various antitrust lawsdiscussed in this section. Note theirresponses on the board. Then, foreach listed response, call on volun-teers to explain the purpose of thelaw.




MultimediaDaily Focus Transparency 22Vocabulary PuzzleMakerInteractive Tutor Self-Assessment Software




248 CHAPTER 9

Terms to Know• interlocking directorate• antitrust legislation• merger• conglomerate• deregulation

Reading Objectives1. What is the difference

between interlocking direc-torates and mergers?

2. What is the purpose of fed-eral regulatory agencies?

3. How has some regulationhurt consumers?

READER’S GUIDE

H istorically, one of the goals of government in the UnitedStates has been to encourage competition in the economy.In this section, you’ll learn about the federal laws and regu-

latory agencies—including the Federal Trade Commission mentionedabove—that attempt to force monopolies to act more competitively.

Antitrust LegislationThe industrial expansion after the Civil War fueled the rise of

big businesses. John D. Rockefeller’s Standard Oil Company wasthe most notorious for driving competitors out of business andpressuring customers not to deal with rival oil companies. Healso placed members of Standard Oil’s board of directors onto

3

BERGEN RECORD, APRIL 23, 1999

The Federal Trade Commission (FTC) reviews merg-ers to ensure that they do not substantially lessen competition. The agency certainly was busy in 1998. In that year, the number of announced mergers involving American companies exceeded 7,750. A survey conducted in 1999 suggests that the FTC’sworkload will not dwindle in the near future. Of the companies polled in the survey, more than one third said that they intended to acquire other companies within the year.

248

OverviewSection 3 explains the agencies

and laws the federal governmentestablished to protect competitionin the American economy.


Preteaching VocabularyHave students find the defini-

tions of the Terms to Know in theGlossary. Then ask students towrite a brief paragraph explaininghow horizontal, vertical, and con-glomerate mergers differ.


READER’S GUIDE

L ECTURE LAUNCHERLPresident Theodore Roosevelt was known as a trustbuster because he worked to break upmonopolies. He also created regulations for the food industry after people learned that thearmy had been sold beef that had been embalmed. Mergers may reduce competition. Whyare some mergers allowed while others are not?

I. Antitrust Legislation

A. Rockefeller monopolized the oil industry by creating interlocking directorates and putting Standard Oil people on boards of the competition.

B. Sherman Antitrust Act (1890) prevented new monopolies or trusts from forming andbroke up existing ones.

C. Clayton Act (1914) sought to clarify the laws in Sherman Antitrust Act by prohibitingor limiting a specific number of business practices.

D. Federal government must determine whether merging of two companies will signifi-cantly lessen competition.


Many people feel that the break up of Bell Telephone’s monopoly (now known as AT&T and the baby bells) hurt the consumer. Are government rules restrictingmonopolies always good? If not, how do you think the laws should be changed sothat they are better for American consumers? (Answers may vary. Students should think

ti l d d t t d t di f th i t i t t f li )

9-3

PAGES 243–249


Language Deficiencies Students with language problems often have trouble distin-guishing among words with related meanings. Learning objectives may require students toidentify, explain, or discuss. Inform students that identifying usually involves listing by cate-gory, explaining requires giving reasons in a complete form, and discussing requires givingpros and cons. Provide students with opportunities to identify, explain, and discuss ideasduring normal lesson time.



Economic Connectionto... HistoryEconomic Connectionto...

The Trustbuster During thepresidency of TheodoreRoosevelt, the Department ofJustice started more antitrust suitsagainst corporations than it had inall of the three previous adminis-trations. Because of this vigorousenforcement of the ShermanAntitrust Act, Roosevelt earnedthe nickname “The Trustbuster.”




G OVERNMENT REGULATION OF THE MARKET

1. Where on the continuum do command economies fall?

2. What type of regulation do you think a modified free enterpriseeconomy has?

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251

it produces or has acquired such businesses as Cover Girl cos-metics, Pert Plus shampoo, Clearasil skin care, Folgers coffee,Pringles potato chips, Jif peanut butter, Crest toothpaste,NyQuil cough medicine, Dawn dish soap, Cheer and Tide laun-dry detergent, Pampers diapers, and Charmin toilet paper.

Regulatory AgenciesBesides using antitrust laws to foster a competitive atmosphere,

the government uses direct regulation of business pricing and prod-uct quality. Figure 9.12 on page 252 lists several regulatory agen-cies that oversee various industries and services. These agenciesexist at the federal, state, and even local levels.

Horizontal Merger

Conglomerate Merger Vertical Merger

Juan’s GardenShop

OfficeSupplies

PaintSupplies

Cosmetics

SnackFoods

Insurance

Soaps &Detergents

Shannon’sHome & Garden

GasStations

OilRefineries

OilWells

Lee’s Fix It–Dig It Shop

Gigantic Co.

Mergers Horizontal mergers involve businesses that make the same product or pro-vide the same service. Vertical mergers take place when firms taking part in different stepsof manufacturing come together. A conglomerate is a firm that has at least four busi-nesses, each making unrelated products.




IndependentPracticeL2 Writing Newspaper ArticlesAsk students to choose two corpora-tions in the community and imaginethey have merged. Have studentswrite a newspaper article about thismerger and its impact on the localeconomy. Encourage students topresent their articles in newspaperformat—in columns accompanied byappropriate visuals. Call on volun-teers to share their articles with theclass. BLOCK SCHEDULING



250 CHAPTER 9

conglomerate: large corporationmade up of smaller corporationsdealing in unrelated businesses

with another corporation. As shown in Figure 9.11, three kindsof mergers exist: horizontal, vertical, and conglomerate.

When the two corporations that merge are in the same busi-ness, a horizontal merger has occurred. An example of a horizon-tal merger occurs when Video Store A buys Video Store B. Whencorporations involved in a “chain” of supply merge, this is calleda vertical merger. An example would be a paper company buyingthe lumber mill that supplies it with pulp or buying the officesupply business that sells its paper.

Another type of merger is the conglomerate merger. A conglomerate is a huge corporation involved in at least four ormore unrelated businesses. Procter & Gamble is an example ofa multinational conglomerate. With operations in 70 countries,

Antitrust Legislation

Federal Law

ShermanAntitrust Act(1890)

Clayton Act(1914)

Federal TradeCommission Act(1914)

Robinson-Patman Act(1936)

Celler-KefauverAntimerger Act(1950)

Hart-Scott-Rodino AntitrustImprovementsAct (1976)

Function

Outlawed agreements and conspiracies that restrain interstate trade. Made itillegal to monopolize or even attempt to monopolize any part of interstatecommerce.

Restricted price discrimination—the practice of selling the same good to different buyers at different prices. Prohibited sellers from requiring that a buyer not deal with a competitor. Outlawed interlocking directoratesbetween competitors. Outlawed mergers that lessen competition substantially.

Established the Federal Trade Commission (FTC) as an independent antitrustagency. Gave the FTC power to bring court cases against private businessesengaging in unfair trade practices.

Strengthened the law against charging different prices for the same productto different buyers. An amendment to the Clayton Act of 1914.

Strengthened the law against firms joining together to control too large apart of the market. An amendment to the Clayton Act of 1914.

Restricted mergers that would lessen competition.Required big corporations planning to merge to notify theFederal Trade Commission (FTC) and the Department ofJustice, who would then decide whether to challenge themerger under the terms of the Clayton Act of 1914.


250


OVERNMENT POLICIES TOWARD COMPETITION

RECALLING THE FACTS

Directions: Use the information in your textbook to answer the questions.

1. What are interlocking directorates?

2. Why is the Sherman Antitrust Act important?

3. What is antitrust legislation?

4. What is the purpose of the Clayton Act?

5. What subjective decision must the federal government make related to the Clayton Act?

Name Date Class

9-3

G


Have students studyFigure 9.10. ASK: Why was theClayton Antitrust Act passed?Because the language in theSherman Act was so vague, theClayton Act was passed to sharpenits antitrust provisions.

Some mergers create ratherinteresting names. In 1908, twoCincinnati banks, the ThirdNational Bank and the FifthNational Bank, merged to becomethe Fifth Third Bank. In 1975, thebank changed its name again—toFifth Third Bancorp.

Direct students’ attention to the discussion about conglomerate Procter & Gamble onpage 251. Then have students work in small groups to conduct research to find a con-glomerate that has operations in their state. Direct groups to find advertisements, labels,and other visual materials of the various products produced by the conglomerate’s busi-nesses. Have groups use these materials to create a collage titled “Portrait of aConglomerate.” Encourage groups to display their collages around the room.

BLOCK SCHEDULINGELL

Free Enterprise ActivityOrganize the class into an even number of groups. Assign half the groups the topic of

the aviation industry; assign the other groups the topic of the telecommunications industry.Have groups investigate the impact of deregulation on their assigned industry. Directgroups to use their findings to develop a brief, illustrated report. Ensure that various tasksare shared among group members so that all members are fully involved in the project.Ask group representatives to present their finished reports to the class.

BLOCK SCHEDULING


ECONOMICS & YOU



ASK: Why do companies in thesame industry sometimesmerge? to cut costs and becomemore profitable


L3 Writing Editorials Ask studentsto write newspaper editorials thatsupport or oppose the followingstatement: Government antitrustlaws and agencies protect competi-tion and benefit consumers. Call onvolunteers to share their articles withthe class.

253253


Deregulation Although the aim of gov-ernment regulations is to promote effi-ciency and competition, recent evidenceindicates that something quite differenthas occurred. In the 1980s and 1990s,many industries were deregulated—thegovernment reduced regulations and con-trol over business activity. It was foundthat in trying to protect consumers fromunfair practices, government regulationshad actually decreased the amount of com-petition in the economy.

As an example, the Federal Communications Commission(FCC) had for years regulated the basic channels in the televi-sion market. With deregulation came the entry of competitivepay-TV, cable, and satellite systems.

Many economists speculate about what would happen if thegovernment removed its watchdog responsibility toward mergersin general. Economists assume prices would rise. If, however,the price increases caused profits to be excessive, other sellerswould find ways to enter the market. Consumers would benefiteventually from a competitive supply of goods and services.




3

Agency Purpose

Student Web Activity Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 9—Student WebActivities to learn more about conglomerates.

deregulation: reduction of gov-ernment regulation and controlover business activity

Understanding Key Terms1. Define interlocking directorate, antitrust legisla-

tion, merger, conglomerate, deregulation.

Reviewing Objectives2. What is the difference between interlocking

directorates and mergers?

3. Graphic Organizer Use a chart like the onebelow to describe the purpose of five federalregulatory agencies.

4. How has some regulation hurt consumers?

Applying Economic Concepts5. Regulation If the shampoo you just bought

caused your hair to fall out, which regulatoryagency should you contact to complain? Why?What agency should you contact if the newwashing machine your parents just boughtbreaks down, and the manufacturer refuses tohonor the warranty?

6. Categorizing Information Type con-glomerate into a search engine. Researchone of the conglomerates that you find, andlist all the businesses or products owned bythat conglomerate.



ReteachHave students reread selected

paragraphs. Then have them closetheir textbooks and write frommemory five facts about govern-ment policies toward competition.

1. All definitions can be found in the Glossary.2. With an interlocking directorate, some mem-

bers of the boards of directors of different cor-porations are the same. With a merger, twocorporations join together.

3. See Figure 9.12 for possible entries for thechart.

4. Some government regulations have decreasedthe amount of competition in the economy.

5. the Food and Drug Administration, because itregulates the purity and safety of cosmetics,such as shampoo; the Federal TradeCommission, because it regulates product warranties

6. Lists will vary.

Have students discuss the follow-ing questions: What was the initialgoal of government antitrust legis-lation? In your opinion, how suc-cessful has it been?

Name Date Class

interlocking directorate The majority of a board of directors for one company also serve as the board ofdirectors for a competing corporation (page 249)

antitrust legislation Federal and state government laws passed to prevent new monopolies from formingand to break up those that already exist (page 249)

merger A combined company that results when one corporation buys more than half the stock of anothercorporation and, thus, controls the second corporation (page 249)

conglomerate A large corporation made up of smaller corporations dealing in unrelated businesses (page 250)

deregulation Government reduction in the amount of regulation and control that it has over businessactivity (page 253)

KEY TERMS


G OVERNMENT POLICIES TOWARD COMPETITION


Who sets the rules for classroom behavior in your school? What type of rules are you required tofollow? What type of environment do these rules try to create?

In this section, you will learn about federal laws and regulatory agencies that attempt to shapethe business environment and force monopolies to act more competitively.

ORGANIZING YOUR THOUGHTS

9, 3




Federal RegulatoryAgencies

Agency

Federal Trade Commission(FTC) (1914)

Food and DrugAdministration (FDA)(1927)

Federal CommunicationsCommission (FCC) (1934)

Securities and ExchangeCommission (SEC) (1934)

Equal EmploymentOpportunity Commission(EEOC) (1964)

Occupational Safety andHealth Administration(OSHA) (1970)

Environmental ProtectionAgency (EPA) (1970)

Nuclear RegulatoryCommission (NRC) (1974)

Function

Regulates product warranties, unfair methods of competition ininterstate commerce, and fraud in advertising.

Regulates purity and safety of foods, drugs, and cosmetics.

Regulates television, radio, telegraph, and telephone; grantslicenses, creates and enforces rules of behavior for broadcasting;most recently, partly regulates satellite transmissions and cable TV.

Regulates the sale of stocks, bonds, and other investments.

Responsible for working to reduce discrimination based on reli-gion, gender, race, national origin, or age.

Regulates the workplace environment; makes sure thatbusinesses provide workers with safe and healthful workingconditions.

Develops and enforces environmental standards for air,water, and toxic waste.

Regulates the nuclear power industry; licenses andoversees the design, con-struction, and operation ofnuclear power plants.


252

252




Name Date Class

9, 3

G OVERNMENT POLICIES TOWARD COMPETITION


6. One goal of government in the United States has been to

a. protect monopolies. b. encourage competition in the economy.c. promote mergers. d. discourage competition in the economy.

7. The practice of creating interlocking directorates

SCORE

A1. interlocking directorate


3. merger

4. conglomerate

5. deregulation

Ba. combined company that results when one

corporation buys more than half the stock of another corporation

b. large corporation made up of smaller corporationsdealing in unrelated businesses

c. reduction of government control over business activity

d. board of directors with members who also serve asthe board of directors of a competing corporation

e. laws that prevent new monopolies from formingand break up those that exist


Section Quiz 9–3

Have students review the infor-mation in Figure 9.12. ASK:Which agency might conducttests on the safety of a new drug?Food and Drug AdministrationWhich agency might you contactif you have questions about theregulation of cable television?Federal CommunicationsCommission Which agency mightinvestigate charges of insidertrading of stock? Securities andExchange Commission

Nutrition Information Government regulatory agencies can use the weapon of publicdisclosure—the requirement that businesses reveal information to the public. For example,the Food and Drug Administration (FDA) requires food producers to provide basic informa-tion on nutritional content of most food products. Nutrition information labels follow a stan-dard format, listing amounts per serving of calories, protein, carbohydrates, fiber, fat,cholesterol, and other nutrients and vitamins. Since the FDA sets serving sizes, con-sumers are able to see which products offer the best nutritional value for the price.

Extending the Content

See the Web Activity LessonPlan at ett.glencoe.com for anintroduction, lesson description,and answers to the Student WebActivity for this chapter.


255


Perfect Competition

• There are four basic market structures in theUnited States: monopoly, oligopoly, monopolisticcompetition, and perfect competition.

• Perfect competition is characterized by numerousbuyers and sellers, an identical product, easy entryinto the market, easy access to information aboutprices, and no control over price.

• The market for agricultural products is often usedas an example of perfect competition because indi-vidual farmers have almost no control over themarket price of their goods.

• When perfect competition exists, society benefitsfrom its efficient allocation of productive resources.

Monopoly, Oligopoly,Monopolistic Competition

• In a monopoly, a single seller controls the supplyof the good or service and thus determines theprice.

• A monopoly is protected by barriers to entry,which could be government regulations, a large initial investment, or ownership of raw materials.

• Four types of monopolies exist: natural monopoly,geographic monopoly, technological monopoly, andgovernment monopoly.

• Natural monopolies are often advantageous in thatthey give the company an economy of scale—which means because of its size, the company canproduce the largest amount for the lowest cost.

• An oligopoly is an industry dominated by severalsuppliers who exercise some control over price.

• Oligopolies and monopolistic competitors useproduct differentiation to make their productsmore valuable in consumers’ eyes.

• Advertising brand names is vital in the marketstructure known as monopolistic competition, inwhich a large number of sellers offer similar butslightly different products.

Government PoliciesToward Competition

• The government has passed antitrust legislationto prevent monopolies from forming or to break upthose that already exist.

• Two famous pieces of antitrust legislation are theSherman Antitrust Act and the Clayton Act.

• Three kinds of mergers exist: horizontal, vertical,and conglomerate.

• Federal regulatory agencies oversee various typesof industries to ensure fair pricing and productquality.

• Deregulating some industries in the 1980s and1990s resulted in more competition amongbusinesses.

C H A P T E R

SECTION 1

SECTION 2

SECTION 3

Chapter Overview Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 9—Chapter Overviews toreview chapter information.

9

Use the Chapter 9 Summary to preview, review, condense, orreteach the chapter.

Preview/ReviewVocabulary PuzzleMaker Soft-

ware reinforces the key terms usedin Chapter 9.

Interactive Tutor Self-Assess-ment Software allows students toreview Chapter 9 content.

CondenseHave students listen to the

Chapter 9 Audio Program (alsoavailable in Spanish) in the TCR.Assign the Chapter 9 Audio ProgramActivity and give students the Chap-ter 9 Audio Program Test.

ReteachHave students com-

plete Reteaching Activity 9 in theTCR (Spanish Reteaching Activitiesare also available).

C H A P T E R 9

ECONOMICS & YOU



If you do not have accessto a videodisc player, theEconomics & You programs arealso available in VHS.

Product Differentiation Direct students to monitor family purchases of such items assoft drinks, breakfast cereals, toothpaste, and soap over a set period of time. Have themlist these items, the brands of these items, and the reasons why the particular brandswere chosen—price, quality, brand loyalty, and so on. At the end of the time period, havestudents present their findings in chart form. Ask students to accompany their charts with abrief analysis of their findings, noting how many of the decisions on brands were influ-enced by advertisements seen by family members.

Economics Journal

■ Cofounder and chief executive officer of Microsoft

■ Recipient of the1993 PriceWaterhouseLeadership Awardfor LifetimeAchievement

■ “The richest man inAmerica” accordingto Forbes Maga-zine’s annual survey

In the book The Road Ahead(1996), Bill Gates explains his

vision of an interconnectedworld built around the Internet:

“Over the next decade, busi-nesses worldwide will be trans-formed. Intranets will revolutionizethe way companies share informa-tion internally, and the Internetwill revolutionize how they com-municate externally. Corporationswill redesign their nervous systemsto rely on the networks that reachevery member of the organizationand beyond into the world of sup-pliers, consultants, and customers.These changes will let companiesbe more effective and often smaller.In the longer run, as broadbandnetworks make physical proximityto urban services less essential,many businesses will decentralizeand disperse their activities, andcities may be downsized too.

Even the smallest of all busi-nesses, the individual earning a liv-ing in a profession or as an artist,has been empowered by the PC.

One person without any staff canproduce reports, handle corre-spondence, bill customers, andmaintain a credible business presence—all surprisingly easily. In field after field, the tools of thetrade have been transformed byPCs and software.

All of these electronic innova-tions—e-mail, shared screens, video-conferencing, and video phonecalls—are ways of overcoming phys-ical separation. As they becomecommonplace, they’ll change notjust the way we work together butalso the distinction we makebetween the workplace and every-where else.”Checking for Understanding

1. In Gates’s opinion, what will be thelong-term impact of intranets and theInternet?

2. How does Gates characterize elec-tronic innovations?

William GatesENTREPRENEUR (1955–)

254

254

BackgroundIn 1975 William Gates—a 20-

year-old Harvard dropout—foundedMicrosoft with business partnerPaul Allen. The company’s bigbreak came in 1980, when IBMasked Gates and Allen to providethe operating system for its newpersonal computer. (The operatingsystem is the software program thatmanages the inner workings of acomputer.) Today Microsoft is theworldwide leader in software forpersonal computers. In 2000, BillGates stepped down as CEO ofMicrosoft, assuming the position ofChief Software Architect.

Answers to Checking for Understanding1. Intranets and the Internet will revolutionize the way businesses communicate inter-

nally and externally over the next decade.2. They are ways of overcoming physical separation among individuals and businesses.

Have students read Gates’sthoughts on how computers havetransformed—and will transform—business. Next, ask students towrite questions they might like toask Gates about his vision of busi-ness in the future. Call on volun-teers to share their questions withthe class. ASK: Based on the infor-mation in this feature, how do youthink Bill Gates might answerthese questions?

Assign the Checking forUnderstanding questions. After stu-dents have completed this assign-ment, have them search for moreinformation on Microsoft—locationof head offices, company organiza-tion, recent sales and income fig-ures, and so on. Encouragestudents to present their findings ina brief written report.

CHAPTER 9Assessment and Activities


257


Thinking Critically1. Finding the Main Idea Explain in a para-

graph how supply and demand work inthe agricultural market when governmentcontrols are not operating.

2. Making Generalizations Re-create the spi-der map below, then write two ways thatthe free enterprise system works to breakthe three powers of monopolies noted.

3. Making Comparisons What are the funda-mental differences between the goals ofantitrust legislation and the goals of fed-eral government regulatory agencies?

ApplyingEconomic ConceptsCompetition and Market Structure Make a listof the four types of monopolies that exist.Under each type, list three real examples—whether at the federal, state, or local levels.

CooperativeLearning Project

Organize into groups of three—with onegroup member representing monopolies;another, oligopolies; and the third, monopo-listic competition. Each member of eachgroup should clip business advertisementsand articles that characterize his or her mar-ket structure. As a group, compare the ads(and businesses) that each person collected.Defend your reasoning behind placing a par-ticular company in its particular grouping.

Reviewing SkillsDrawing Inferences and Conclusions UsingFigure 9.12 on page 252, infer which fed-eral regulatory agency would be responsiblefor the following “ingredients” of makingpizza.1. Checks the freshness of milk that makes

mozzarella cheese.2. Determines that shipping rates are fair for

the pepperoni arriving from out-of-state.3. Makes sure the pizza advertisement on TV

is truthful.4. Enforces safe working conditions for

employees in the pizza parlor.5. Makes sure that the pizza parlor disposes

of waste in a safe manner.

TechnologyActivityUsing the Internet Choose one of the regula-tory agencies mentioned in this chapter anduse your Internet search engine to go directlyto that agency’s home page. Use the informa-tion you obtain to write a report summariz-ing the main functions of that agency.

Procter & Gamble was mentioned in thischapter as an example of a multinational con-glomerate. Use the Internet to find out (a) inhow many countries P&G has manufacturingoperations; (b) how many countries buy P&Gproducts; (c) how many people are employedby P&G; and (d) what its annual worldwidesales are. Also note the names of productsused in Africa, Asia, Europe, and LatinAmerica. Write a report about your findings,and share your report with the rest of theclass.

Breaking thePower of

Monopolies

Barriers to Entry Reduced Competition

Higher Prices

Applying EconomicConcepts

Examples will vary. Have stu-dents compare their lists to noteany similarities.

CooperativeLearning Project

Encourage groups to post theirads and articles on the bulletinboard.

Reviewing Skills1. Food and Drug Administration2. Federal Trade Commission3. Federal Communications

Commission4. Occupational Safety and Health

Administration5. Environmental Protection

Agency

Technology ActivityCall on volunteers to share their

reports with the rest of the class.

Analyzing theGlobal Economy

Suggest that students illustratetheir reports with appropriatetables, charts, graphs, and maps.

ASK: What are the four types ofmarket structures discussed inthis chapter? Provide examplesof industries that match, orclosely match, each of thesemarket structures. perfect com-petition, monopoly, oligopoly,monopolistic competition; exam-ples will vary

Chapter BonusTest Question

wholesalers—will band together to try tocontrol price. Therefore, price is deter-mined by the interaction of supply anddemand.

2. Answers may include: Overcoming barri-ers to entry—technological advances andprofit motive; Overcoming higher prices—law of demand prevents monopolists fromcharging outrageous prices and govern-ment regulations set some price ceilings;Overcoming reduced competition—govern-

ment deregulation and technologicaladvances.

3. The goals of antitrust legislation are toprevent new monopolies from developingand to break up those that already exist.The goal of regulatory agencies is to regu-late business pricing and product qualityto protect consumers and businesses fromunfair practices.



Identifying Key TermsWrite the letter of the definition in Column Bthat correctly defines each term in Column A.

Column A1. barriers to entry2. deregulation3. conglomerate4. interlocking directorate5. geographic monopoly6. merger7. monopolistic competition8. oligopoly9. government monopoly


Column Ba. large corporation made up of unrelated

businessesb. the joining of two corporationsc. characterized by many firms but differen-

tiated productsd. obstacles that prevent new companies

from being formede. removing government restrictions from

industries

f. characterized by a few firms with differen-tiated products

g. a store located in an isolated areah. passed to prevent monopoliesi. building and maintaining local roads and

bridgesj. situation in which some of the board of

directors for competing companies are thesame people

Recalling Facts and IdeasSection 11. In a perfectly competitive market struc-

ture, how much control does a singleseller have over market price?

2. What is the relationship between the typesof products that sellers sell in a perfectlycompetitive market?

3. What is one example of an almost per-fectly competitive market?

Section 24. What are the three types of market struc-

tures with imperfect competition?5. What is the difference between a geo-

graphic monopoly and a technologicalmonopoly?

6. How much control does an oligopoly haveover price?

7. In monopolistic competition, how manysellers are there?

Section 38. What is the difference between a horizon-

tal merger and a vertical merger?9. What two methods does the federal govern-

ment use to keep businesses competitive?

9

Self-Check Quiz Visit the Economics Today and Tomorrow Web site at ett.glencoe.comand click on Chapter 9—Self-Check Quizzes toprepare for the Chapter Test.

256 CHAPTER 9

256

Identifying KeyTerms1. d 6. b2. e 7. c3. a 8. f4. j 9. i5. g 10. h

Recalling Facts and Ideas1. no control2. The products are nearly

identical.3. agriculture4. monopoly, oligopoly, monopo-

listic competition5. Geographic monopoly: where

an individual seller has controlover the market because of geo-graphic location. Technologicalmonopoly: where a seller hasdeveloped a new manufacturingprocess or has invented some-thing entirely new and receivesa government patent for thedevelopment or invention.

6. limited control7. numerous sellers

8. Horizontal merger: where one companyacquires another company in the samebusiness. Vertical merger: where one com-pany acquires another company fromwhich it buys or to which it sells.

9. through antitrust legislation and regula-tory agencies

Thinking Critically1. Answers may vary, but might include the

following: When there are no governmentcontrols at work, the agricultural marketis almost perfectly competitive. In an agri-cultural market, there are thousands offarmers (sellers) and thousands of whole-salers (buyers). With so many farmers, noone farmer has influence on price. And itis unlikely that farmers—or farmers and

Have students visit theEconomics Today and TomorrowWeb site at ett.glencoe.com toreview Chapter 9 and take the Self-Check Quiz.

MindJogger Videoquiz

Use MindJogger to reviewChapter 9 content.


259

large assortment of merchandise. Second,charge the lowest prices. Third, provideexcellent customer service. Finally, cater toboth the do-it-yourself amateur and the con-struction-industry professional.

The early days were a struggle. Some-times, the partners did not have the cashto buy supplies. So Farrah stacked thestore with empty paint cans and boxes to make it look as though it were wellstocked. Over time, however, businessbegan to pick up, and Marcus, Blank, and Farrah opened several more stores.

Building an EmpireIn 1981 the partners took a major step,

selling shares in the company. With the $4million they made from the sale, they beganan ambitious expansion program. First, TheHome Depot began to establish a foothold inother states. Then the company went inter-national, opening stores elsewhere in theWestern Hemisphere. By 1999, it had outletsin 44 states, Puerto Rico, Canada, and Chile.

Sharing the WealthSince its earliest days, The Home Depot

has offered employees the chance to sharein its success. It gives many workers the

choice of taking shares insteadof year-end cash bonuses. Workersalso have a chance to buy shares atdiscount rates. This practice, ArthurBlank thinks, simply is good business.When workers own stock, he says, they“feel that they own the stores, that theyown the merchandise, that they have totalresponsibility for the customers in theiraisles, and that they create the value.” Manyworkers certainly have benefited from thepractice. About 1,000 of them have stockportfolios worth more than $1 million.

The Home Depot also makes an effort toshare its good fortune with the communi-ties in which it operates. In 1999 alone, itbudgeted $15 million for charity. It alsoencourages its workers to volunteer forlocal charitable organizations.

Free Enterprise in Action

1. What new approach did The Home Depotbring to the home improvement industry?

2. Why does Arthur Blank think that offeringstock to employees is good business practice?

Have students answer the FreeEnterprise in Action questions.

Answers to Free Enterprise In Action1. The approach followed four basic principles: stock a large assortment of merchan-

dise; charge the lowest prices; provide excellent customer service; and cater to boththe do-it-yourself amateur and the construction-industry professional.

2. Blank feels that when workers own stock, they feel that they own the stores and themerchandise and that they have responsibility for their customers. This will tend toencourage them to make a greater effort.

Close by asking students to dis-cuss the following: Would TheHome Depot’s approach work inother areas of retailing? Why orwhy not?

Focus on Free Enterprise

When Bernie Marcus and Arthur

Blank lost their jobs at Handy

Dan, a chain of home improvement stores

in California, they knew what they were

going to do. They would open their own

home improvement store—and it would be

the best in the United States. Just exactly

how they were going to do this, they were

not sure. It became clear to them, however,

when they visited a store in Long Beach

called Homeco.

A Different ApproachHomeco did not look, or work, like any

other home improvement store Marcus andBlank had seen. The huge barn-like spacewas stacked from floor to ceiling with a vastarray of home supplies. Every item wasoffered at a rock-bottom price. And therewere tradespeople—painters, carpenters,plumbers, electricians, and so on—through-out the store ready to give shoppers help andadvice. Marcus and Blank recognized thatthis blend of warehouse retailing and supe-rior customer service was the way to go. Theyquickly asked Homeco’s owner, Pat Farrah, tojoin them in their business venture.

Shortly after, Marcus, Blank, and Farrahmoved their operations to Atlanta, Georgia.They opened their first store—called TheHome Depot—there in 1978. The store oper-ated on four simple principles. First, stock a

Focus on Free Enterprise

The Home Depot

Bernie Marcus (left) and Arthur Blank

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Mention that in the little morethan 20 years since its founding,The Home Depot has grown tomore than 800 stores. These outletsaveraged more than $25 billion insales each year—nearly 15 percentof the market for home-improve-ment products.

Direct students to read the fea-ture. Then ask them to note thenew approach to home-improve-ment products retailing introducedby Bernie Marcus, Arthur Blank,and Pat Farrar. Also, have themidentify other aspects of The HomeDepot operation that they find dif-ferent or interesting. Conclude byasking students to discuss howthese approaches contributed toThe Home Depot’s success.

The Home Depot’s stock ispublicly traded and is included inthe Standard & Poor’s 500 Indexand the Dow-Jones Industrial Average.

More About The Home Depot The Home Depot has major plans for expansion in thenew century. It wants to open more stores in foreign countries. And, in 1999, it opened aconvenience-style hardware store in New Brunswick, New Jersey. This is a first of a chainof stores, called Villager’s Hardware, designed for smaller locations. The Home Depot fullyexpects to have 1,900 stores in business by 2003. Have students track the stock prices forThe Home Depot for one month.

Free Enterprise Activity

The Home Depot has beenranked by Fortune Magazine asAmerica’s Most Admired SpecialtyRetailer for six consecutive years.

CHAPTER 9 Resource Manager CHAPTER 9 Resource Manager

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