Vocabulary

• Monopoly- When a market is dominated by a single producer.

• Anti-Trust Laws- Designed by the US Gov’t in order to prevent monopolies.

• Vertical Merger- When a company buys out another company that was formally its supplier.

• Horizontal Merger- Merging of 2 firms that make the same products.

review• SUMMARIZE THE LAW OF SUPPLY AND DEMAND.• WHAT IS THE EQUILIBRIUM PRICE?• WHAT ARE SOME OF THE INFLUENCES ON SUPPLY AND DEMAND?• HOW DOES COMPETITION IMPACT SUPPLY AND DEMAND?• SUMMARIZE DIFFERENCE B/W SUBSTITUTE GOODS AND

COMPLIMENTARY GOODS• WHAT FACTORS AFFECT PRICES?• WHAT IS THE DIFFERENCE BETWEE N INFLATION AND DEFLATION?• HOW DO INTEREST RATES IMPACT PRICES?• HOW DOES THE GOVERNMENT IMPACT PRICES?

• EQ: WHY IS COMPETITION GOOD FOR CONSUMERS?

WARM UP

• What is a monopoly?– When there is only 1 producer of a good and no

other substitutes

1. Dana’s company has produced a large number of pink rubber shoes. However, the demand for the shoes is drastically less than the current supply. Which of the following situations does Dana find herself in?

A. She needs to raise prices to make up the difference between supply and demand.

B. She needs to cut prices b/c she is experiencing a surplus.

C. She need to cut prices b/c she is experiencing a shortage.

D. She needs to raise prices b/c she is experiencing a surplus.

Market Systems

Market Systems • Market system

– When buyers and sellers come together to exchange things of value.

• In a perfectly competitive market, there must be:– A large number of buyers and

sellers.– The same quality and type of

products.– No major barriers to entering

market.– Price runs the market– Ex: Farm Products

Monopolistic Competition

• Monopolistic Competition– Firms compete on a

variety of levels– Substitutes exist but are

not exactly the same• Restaurants: Have unique

menus and food items, but substitutes exist

Monopoly

• Monopoly– When there is only one

producer of a given good/service and there are no adequate substitutes.• One company supplying electricity

or making cars• Utilities

• Usually charge higher prices, produce less, and provide less quality than a competitive market.

Oligopoly

• Oligopoly– A market in which there are

only a few producers.• Cell phones, soft drinks, hospitals

• Operate between perfect competition and monopoly– They can affect the price of a

product but must also observe the actions of competitors

• Easy to conspire with competitors– Laws prevent these actions

Conglomerates & Mergers • Conglomerate

– Large companies that consist of several businesses, many of which may be unrelated in what they produce.• GE owning NBC; Disney owning ESPN & ABC• The process of combining firms is called a merger

• Vertical merger– When a company buys out another company

that was previously its supplier.• Ford buying out Firestone Tires

• Horizontal merger– Merging of two firms that make the same

products.• In 1998, BP bought out the American Oil

Company (Amaco)• Multinational conglomerate

– Conglomerate with companies in more than one country. • British Petroleum (BP)

Anti-Trust Laws• Monopolies prevent a

competitive market• To ensure competition the

US Government began passing Anti-Trust Laws in the late 1800’s– These laws prohibit

monopolies– Courts have used these laws

to break-up monopolies in tobacco, oil, railroads, etc.

GRAPHIC ORGANIZER

• EQ: WHY IS COMPETITION GOOD FOR CONSUMERS?

Reflection

• Explain how American Anti-Trust Laws are an example of a mixed-market economy?

• Create a spectrum or continuum showing the levels of competition in a free market, monopoly, monopolistic competition and oligopoly

• Compare and Contrast a horizontal and vertical merger?

• Evaluate the role competition plays in regulating quality and price

• Describe characteristics of a competitive market

Closing?

• How are American Anti-Trust Laws an example of a mixed-market economy?– The laws are an example of government

involvement in the economy. A pure market economy has no government involvement.