Unit 3: Partners in the American Economy Chapter 7 -Market Structures "The inevitable tendency in capitalism is the accumulation of wealth. According.

Unit 3: Partners in the American Economy

Chapter 7 -Market Structures

• "The inevitable tendency in capitalism is the accumulation of wealth. According to its own laws, capital always moves to where it can generate the greatest profit, never the greatest good. Why does everyone know the saying, "The rich get richer, and the poor get poorer?" Because it's true."

• - Richard Curtisin the Colorado Daily, page 6, June 8-9, 1994

Why Do Markets Exist?

• Markets exist because we aren’t self-sufficient but instead consume many products produced by other people.

• The typical person is not self-sufficient The typical person is not self-sufficient but instead specializes by working at a but instead specializes by working at a particular job and uses his or her income particular job and uses his or her income to purchase goods and services.to purchase goods and services.

What is a Market?

POTENTIALPOTENTIALBUYERSBUYERS

POTENTIALPOTENTIALSELLERSSELLERS

MARKETSMARKETS

Adam Smith

• Role of government restricted to:• Protect private property• Enforce contracts• Settle disputes• Protect businesses from foreign

competition

Review:When MC = MR profit is maximized

• Profit is maximized when “one additional unit” will NOT increase profit

Section 1What is Perfect Competition?

• 1. What are the 5 characteristics of perfect competition?

Many buyers and sellers

• No one seller has complete control over the price.

• If they did this would be a MONOPOLY!

• 2. List 5 products which have many buyers and sellers who have no control over the price but fluctuates with the market.

1968 Pontiac GTO "Woodward Ad"

Product Differentiation

• Real or imagined differences between companies and products

3. Define standardized product.

Non-Price Competition

• In a market with standardized products producers must find other ways to convince you to buy their good or service.

• Non-price competition is the use of advertising and promotions to convince consumer of a brand difference

Freedom to enter and exit the market

• No government regulation prevents a business or customer from entering the market.

4. List 5 examples of markets which our government DOES regulate.

Buyers and Sellers Act Independently

• Interaction between buyers and sellers sets the Equilibrium price.

• This assures consumers the price will remain competitive.

Buyers and Sellers are Well-Informed

• Both buyers and sellers have enough information to make wise choices.

The US Women’s Volleyball Team and Ford Mustang Convertible

Imperfect Competition

• When any of the 5 conditions for perfect competition are not met

5. Read Example 1 in our text – Corn. What are the 2 reasons the corn market is NOT a perfect market?

6. Read Example 2 on beef. What are 2 reasons the beef market is NOT perfect competition?

Section 2 The Impact of Monopoly

• Define:7. Monopoly8. Cartel9. Price Maker10. Barrier to entry

• You deserve a break today • (McDonalds) • Be all that you can be • (U.S. Army) • M'm, M'm good • (Campbell's) • See the USA in your ******** • (GM) • I wish I was an Oscar Meyer Wiener • (Oscar Meyer) • Double your pleasure, double your fun

(Wrigley's Doublemint Gum) • It's the Real Thing • (Coca Cola) • A little dab'll do ya • (Brylcreem)

Characteristics of a Monopoly

11. What are the 3 characteristics of a Monopoly?

12. What example does your book give of a monopoly?

13. Americans do NOT like monopolies. Nevertheless, list five examples of monopolies in the US.

Kinds of Monopolies

14. Define Natural Monopoly15. Read Example 1: Water

Monopoly. What are the 3 benefits to society of allowing a water company to maintain a monopoly?

16. Why is this an example of economies of scale?

17. In return for protection of their monopoly status, what does the government require from the monopoly?

Government Monopoly

18. Define Government Monopoly. 19. Read Example 2: The Postal

Service. How is this an example of a government monopoly?

20. THINK: Why does the government believe it is essential to have a regulated mail service?

21. What competition for the Postal Service has developed?

Technological Monopoly22. Define Technological

Monopoly23. Read Example 3:

Polaroid. For what process did Polaroid have a monopoly?

24. What is a patent?25. How long does a patent

last?26. What else may end a

technological monopoly?

Geographic Monopoly

27. Define Geographic Monopoly.

28. Read Example 4: Professional Sports

29. What 2 conditions make baseball a monopoly?

30. What are 2 benefits for the team owners because of their monopoly status?

• When you’re the fairest of them all.

Types of Geographic Monopoly

31. What is another type of geographic monopoly?

32. Why does this type of geographic monopoly often occur in small communities?

33. What 3 modern conditions have contributed to decrease monopolies caused by physical isolation?

Profit Maximization is the goal

How will Elasticity affect a Monopoly?

34. Why is the demand curve for a monopoly STILL have a downward slope?

35. THINK: How will elasticity affect a monopoly?

36. How does a monopolist actually control the price?

Review: What is the law of supply?

Example: Drug Manufacturer

37. Read the example. About how long does a drug patent last in the US?

38. After the patent expires, how will the price for the drug be established?

39. What is a generic?

40. What did the makers of Claritin do after their patent expired?

Section 3 – Other Market Structures

41. What is Monopolistic Competition?

42. Why is a market monopolistic?

43. What are the 2 distinguishing characteristics of monopolistic competition?

Product Differentiation

44. What is product differentiation?

45. List 5 examples of goods advertised as very different, but the actual difference is small.

Nonprice Competition

46. Define nonprice competition.

47. What 4 examples does your text give of nonprice competition?

48. Let’s look at the characteristics of monopolistic competition! Yeah!

Less story, More Candy

Characteristic 1Many Sellers and Buyers

49. Why might seller have a monopoly on your business?

50. List 5 examples of products which you ALWAYS purchase.

25 Years and still going strong

Characteristic 2Similar but Differentiated Products

51. How do sellers in monopolistic competition convince consumers their product is different?

52. What are 5 examples of goods or services you use which are advertised as different but you believe are really very similar?

53. What is a focus group?

Characteristic 3Limited Control of Prices

54. What can give producers limited control over prices?

55. Why can producers still not charge any price they want?

Characteristic 4Freedom to Enter or Exit Market

56. THINK: What do we know will happen if profits increase for a product?

57. If these new producers can make the product more efficiently what will happen to the small businesses that can not?

58. What do businesses leaving the restaurant market have to do?

Oligopoly

59. What is an oligopoly?

60. Define market share.

61. Define start-up costs.

Characteristics of an Oligopoly

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

Oligopoly Market

67. Of what action must competitors in an oligopoly always be aware?

68. What is characteristic 4?

69. For what 2 reasons might a business have difficulty entering an oligopoly market?

Comparing Market Structures

70. Identify the advantages and disadvantages of each type of market structure by recreating Figure 7.5.

Number of Sellers

Type of Product Sellers’ Control Over Prices

Barriers to Enter or Exit Market

Perfect Competition

Monopolistic Competition

Oligopoly

Monopoly

Regulation and DeregulationToday

71. Define regulation72. Define antitrust legislation73. Define trust 74. Define merger75. What 3 industries developed

monopolies in the 1800s?76. What act was passed in 1890 to

control businesses attempting to restrain trade?

77. What government agencies are responsible for enforcing these regulations?

78. What does the government look at to determine if they will allow a merger?

Ensuring a Level Playing Field

79. Why is competition so important?80. Define price fixing.81. How was the CD market an example

of price fixing?82. Define market allocation.83. What example does your book give

for this situation?84. What is predatory pricing?85. What corporation does Mrs. Burton

dislike intensely which uses predatory pricing to drive competitors out of the market?

Protecting Consumers

86. Define cease and desist order.87. Define public disclosure.88. What agency is primarily

responsible for promoting competition and preserving unfair business practices?

89. Which regulates the market for stocks and bonds?

90. Which is responsible for protecting consumers from false labeling of a product?

91. Which regulates the communications industry?

92. Which enforces environmental laws?

93. Which sets safety standards for products?

Deregulating Industries

94. Define deregulation.

95. Why does deregulation usually result in lower prices?

THINK: Why do industries which are regulated have little incentive to become more efficient?

96. What are 5 examples of business which have little incentive to be efficient?

97. What industry was deregulated in 1978?

THINK: After the initial deregulation, what occurred in this industry?

Chapter 8Types of Business Organizations

98. What term identifies an enterprise that produces G or S for a profit?99. What do we call a business owned and managed by a singe person?100. They account for what percent of all businesses in the United States,

BUT they only account for what percent of all sales in the US?THINK: Why?

Sole Proprietorships

101. What are the 4 advantages of a sole proprietorship?

102. What are the 3 disadvantages of a sole proprietorship?

103. Define limited life.

104. Define unlimited liability.

105. Identify a sole proprietorship.

Section 2Forms of Partnerships

106. Define partnership.107. In a general partnership, who is

responsible for managing the business and who is liable fore all business debs and losses?

108. In a limited partnership, who is often responsible for all debts. What is a limited liability partnership?

109. What is the only reason a limited partner would be responsible for debts of the firm?

110. What are some examples of LLPs? THINK: Why would medical partnerships desire to be LLPS?

Advantages and Disadvantages

111. What are the 5 advantages of a partnership?

112. What are the 3 disadvantages?

113. List some examples of partnerships.

Section 3Corporations, Mergers, and Multinationals

114. Who owns a corporation?

115. Why is a stockholder NOT responsible for a corporation’s liabilities?

116. Define stock.

117. Define dividend.

118. What is the difference between a public company and a private company?

119. List 5 corporations in the US today.

Advantages and Disadvantages120. What are the 4 advantages of

a corporation?

121. What are the 4 disadvantages?

122. Why is a corporation double taxed?

Business Consolidation

123. What are four reasons a business might consolidate?

124. What term identifies the joining of companies that offer the same or similar products or services?

125. Give an example.126. Which term describes the combining of

companies involved in different steps of production or marketing of a product or service?

127. Give an example.128. What is a conglomerate?129. Give an example.130. What is a multinational corporation?131. List 5 examples.

Section 4Franchises, Co-ops, and Nonprofits

132. What is a franchise?

133. What term is given to the individual business which pays a fee to the parent company in return for the right to sell the company’s products?

134. What are the world’s five leading franchises?

135. What are 3 advantages to a franchise?

136. What are the 3 disadvantages?

Cooperatives and Nonprofits

137. What is a cooperative?

138. What are the 3 types of cooperatives?

139. Which purchases large quantities and sells them to the members at a reduced price?

140. What is an example?

131. Which provides their members with a service?

142. What is an example?

Nonprofit Organizations

143. Which is mostly involved in the agriculture industry to allow better marketing of their products?

144. What is an example?

145. What are the 2 types of nonprofits?

146. List 5 examples of nonprofit organizations.

Market Failures

• Inadequate competition – few, large firms control market

• Inadequate information - denies people awareness of better prices or choices

More Market Failures

• Resource immobility - factors of production cannot or refuse to move to other markets

Failure of the market

to provide public goods

• Examples:

• Highways

• National defense

• Social Security

Externalities• Economic side effects

to uninvolved third parties.

• May be positive – provides unexpected advantage

• Or negative – provides unexpected consequence

Examples of Externalities• Positive

• A well-maintained property next door that raises the market value of your own property.

• A pleasant cologne or scent worn by the person seated next to you.

• Improved driving habits that reduce accident risks.

• A scientific advance.

•Negative•Air pollution. •Water pollution. •Loud parties next door. •Traffic congestion. •Second-hand cigarette smoke suffered by a non-smoker. •Increased health insurance premium due to alcohol or tobacco consumption.

Chapter 9The Role of Labor

• Section 1 – How Are Wages Determined?147. At what point do we find the interaction of

the supply and demand for labor?148. What reflects a worker’s productivity in a

competitive labor market?149. Define labor productivity.150. In a free market, what should be a reflection

of a worker’s higher productivity?151. Figures 9.1 and 9.2

• Question 1• Question 2• Question 3

152. Figure 9.3• Question 1• Question 2• Question 3

Why do Wage Rates Differ?

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

Factor 1 – Human Capital

157. What is Unskilled labor?

158. List 5 examples of unskilled jobs.

159. What is Semiskilled labor?

160. List 5 examples of semiskilled jobs.

161. What is required for Skilled labor?

162. List 5 examples of skilled labor jobs.

163. What must a worker have to be a Professional?

164. List 5 examples of professionals.

$0

$5,000

$10,000

$15,000

$20,000$25,000$30,000

$35,000

$40,000

$45,000

Lessthan 8thGrade

8thGrade

9th -11th

Grade

12thGrade

1 - 3 yrscollege

TechSchool

CollegeGrad

Individuals with additional years of schooling are more likely to have:

• Higher basic skills, • Reduced chances of

unemployment, • Higher rates of access to full

time employment, • More weeks and hours of

work over the course of a year,

• Higher rates of access to work-related benefits like health insurance and pension,

• Large annual earnings advantages that persist and grow overtime as they age

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

0

10000

20000

30000

40000

50000

60000

Age

Mean A

nnual E

arn

ings

High School Graduates College Graduates with a Bachelor's degree

Factor 2Working Conditions

165. How does the wage rate signal jobs which are dangerous or unpleasant?

166. List 5 jobs you could never do.

167. List 5 jobs with lower pay, but other rewards and perks.

Factor 3Discrimination

168. What are 3 factors which may cause an employer to discriminate?

169. What is the glass ceiling?

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Factor 4Government Actions

170. Why might a government try to control a supply of labor or a wage?

171. What do we call the lowest wage allowed by law in the US?

THINK: What did we learn in the last unit which minimum wage is an example of? (HINT: floor or ceiling?)

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Section 2Trends in Today’s Labor Market

172. What are the 3 criteria to be included in the civilian labor market?

173. What 2 changes have occurred in the US labor market?

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

Average Earnings

16,605

19,844

23,154

33,433

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

HS Drop Out

HS Diploma

1-3 Yr Post Sec

4-Yr College

Unemployment Rate

11%

6.90%

4.50%

2.30%

0% 2% 4% 6% 8% 10% 12%

HS Drop Out

HS Diploma

1-3 Yr Post Sec

4-Yr College

Changing Occupations

174. What term describes jobs related directly to natural resources? List 5 examples.

175. What jobs are related to the production of goods including the materials and energy to produce them? List 5 examples.

176. What are tertiary jobs? List 5 examples.

Globalization and Jobs

177. Define outsourcing and give an example of outsourcing.

178. Define in sourcing and give an example of in sourcing.

Changes in the Way People Work

THINK: How has telecommuting made life easier for working mothers?

179. What is contingent employment?

180. What term is applied to someone who sells their services on a contract basis?

181. What is another change in the way people are working cited by your text?

The Labor Movement

• Define the following terms

182. Closed shop

183. Union shop

184. Right-to-work laws

185. Collective bargaining

186. Binding arbitration

Chapter 13 Section 1Unemployment in Today’s Economy

187. Unemployment is the percentage of the labor force that is _____ and ________.

188. At what age do we join the labor force statistics?

189. What department in the US is responsible for keeping this data?

Unemployment Rate

• Percentage of people in the labor force who are unemployed• Unemployment rate = number of people

unemployed

Labor force• X 100• What is rate for a population of 143.7 million if 8.7 million are

unemployed?• Answer: 6.1 %

Labor Force Participation Rate

Labor force

Working age population

• X100

• What is the rate from June, 2002 if;• 143.7 million working

• 213.8 million in working age population?

• 67.2 %

What is Full Employment?

• All Occupations

• Employment 127,420,170

• Mean Hourly $17.56

• Mean Annual $36,520

• No cyclical unemployment

• All employment is frictional, structural, and seasonal

• This is called the ‘natural unemployment rate’

Unemployment Considerations

190. What is the term given to people who work less hours than they desire or at a job below their skill level?

THINK: Full employment does NOT mean a zero unemployment rate. What does it mean?

191. At what unemployment rate do economist consider the US to have full employment?

• What are Job Losers?• Job Leavers?• Reentrants?

Types of Unemployment

• Frictional

• Seasonal

• Structural

• Cyclical

Types of Unemployment

192. What is Frictional unemployment?

• People entering and leaving labor force thru creation and destruction of jobs

• Normal and healthy

Seasonal unemployment

• Because of seasonal weather patterns

• Migrant workers are an example of seasonal unemployment.

193. List 5 other examples.

Hotel and catering - Tourism - Fruit picking - Father Christmases

Structural Unemployment

• Changes in technology or international competition change the skills needed to perform jobs or change job locations

194. What are 3 conditions which can cause structural unemployment?

Cyclical Unemployment

• Changing over the business cycle

• Increases during recession

• Decreases during expansion

195. What is the average length of time a worker is unemployed in the US?

THINK: Why is that NOT the case today?

Michelle Torres

Traditional Theory of Wages

• Supply and demand for specific skills determines wage or salary

• Exceptions:• Nonproductive workers

employed because of family ties of political influence

• Underemployed due to race or gender

Theory of Negotiated Wages

• Considers power of organized labor in determining wages

• Union shops

Susie Orman

Economic Rent

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

Signaling Theory

• Employers willing to pay more for degrees

• Serve as ‘signals’ of superior ability

The Impact of Unemployment

196. Why is unemployment inefficient?

197. Which workers lose their jobs first in most situations?

198. What term do we use to describe someone who lose faith in their abilities and skills because they can not find another job?

• MRP = the addition to total revenue (TR) received from the sale of an additional unit of output

• Worker instrumental in producing that output

• Productivity refers to the amount produced per worker per period of time.

• Marginal Physical Product (MPP) – the addition to total product as a result of the employment of one additional unit of labour

• MRP = MPP x P199. If a good sells for $1.00 and a worker produces 300 per day, the MRP of that

unit of labour is __________ per day

Marginal Revenue Productivity

The Supply of Labor

• The amount of people offering their labor at different wage rates.• Involves an opportunity cost –

work versus leisure

• Wage rate must be sufficient to overcome the opportunity cost of leisure

Not another Elasticity!!

• Geographical mobility of labour:• The willingness of people to

move

• The cost and availability of housing in different areas

• The extent of social, cultural and family ties

Labor Mobility

• The amount of information available to workers about jobs in other areas

• The cost of re-location

• Anxiety of the idea of re-location

You Deserve a Break Today

The Labor Market - Demand

Wage Rate ($ per hour)

Number employed

DL

SL

6.00

Q1

DL1

Q2

7.50A rise in the demand for labor would force up the wage rate as there would be excess demand for labor.

Excess Demand

The Labor Market - SupplyWage Rate ($ per hour)

Number employed

DL

SL

6.00

Q1 Q2

SL1

Excess Supply

An increase in the supply of labor would lead to a fall in the wage rate as there would be an excess supply of labor.

5.00

200. Assume an Eqp of $5/hour. Draw a graph depicting this. Then add a government imposed EqP of $7 / hour. Draw and show either a surplus or shortage.

WORD of the DAY

• TERM OF THE DAY • Sucker Rally • What Does it Mean?

A temporary rise in a specific stock or the market as a whole. A sucker rally occurs with little fundamental information to back the movement in price. This rally may continue just long enough for the "suckers" to get on board, after which the market or specific stock falls.

Also known as a "dead cat bounce" or a "bull trap".

• A sucker rally is a buzz word describing a rise in price that does not properly reflect the true value of the stock.