Unit 3 economics

• Perfect competition


  • Many buyers and sellers
  • Identical products
  • Informed buyers and sellers
  • Free market entry and exit
• Barriers to entry in perfect competition


  • Technology
  • Start-up costs
• Monopoly


  Market dominated by a single seller
• Natural monopoly


  • Duke Energy
  • Cincinnati water works
• Patent


  Licenses that give inventors the exclusive right to sell their product for a certain period of time
• Monopolistic competition


  • Many firms
  • Few artificial barriers to entry
  • Slight control over price
  • Differentiated products
• Non-price competition


  Attracting customers through style, location, service - but not for a low price
• Oligopoly


  Market dominated by few large profitable firms
• Market power


  Ability of a company to control prices and output
• Predatory pricing


  Setting the market price below cost levels for short term to drive out competitions
• Antitrust laws


  Laws that encourage competition and break up monopolies/oligopolies in the marketplace
• Deregulation


  Removal of some government control over a market, if it is used to promote competition
• Deregulation


  Eliminates restrictions for new businesses to enter the market
• Sole proprietorship


  Business organization owned and managed by a single individual
• Advantages of sole proprietorship


  • Easy start-up
  • Few rules to follow
  • Sole receiver of profit
  • Full control
  • Easy to discontinue
• Disadvantages of sole proprietorship


  • Unlimited personal liability
  • Limited access to resources
  • Lack permanence
• Partnership


  Businesses owned by 2 or more people who share the same responsibilities and liability for the business
• Advantages of partnership


  • Easy to start-up
  • Taxation
  • Shared decision-making and specialization
  • Larger pool of capital
• Disadvantages of partnership


  • At Least 1 partner has unlimited liability
  • Partners are bound by each other's actions
  • Potential for conflict
• Corporation


  Business that is a legal entity owned by individual stockholders
• Stocks


  Represents a stockholder's portion of ownership of a corporation
• Advantages to a stockholder


  • Don't carry responsibilities for the corporation's actions
  • Shares of stock are transferable
  • Can be sold to others for profit
• Advantages for the corporation


  • Potential for growth than other business firms
  • Borrow money by selling bonds
  • Long lives
  • Hire best labor and best equipment
• Disadvantages to the corporation


  • Difficult and expensive to start-up
  • More regulation
  • More taxation
  • Loss of control
• Business franchise


  Semi-independent business that pays fees to a large ponent company in return for right to sell a product or service
• Advantages for a business franchise


  • Management training and support
  • Financial assistance
  • Standardized quality
  • Centralized buying power
  • National advertising program
• Disadvantages for a business franchise


  • High franchise fees and royalties
  • Limited product and time
  • Strict operating standards
  • Purchasing restrictions
• Nonprofit organization


  Legal entity organized and operated for a collective, public or social benefit, as opposed to an entity that operates as a business aiming to generate a profit for its owners
• Labor force


  Sum of those either working or looking for work: Those neither working in the marketplace nor looking for work are out of the labor force