Transcript Microeconomics

Brief Response
• Would you describe the present US economy
as being at a reasonable market equilibrium
point? Explain. (2)
• Yes. Many US companies are able to clear
their inventories and make room for new
inventories.
• There is a healthy consumer/producer
demand for US goods and services.
Competition and
Market Structures
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Chapter 7 Competition and Market Structures;
Section 1 p. Terms:
• Laissez-faire
• 163 the philosophy that government should not
interfere with commerce or trade.
• Adam Smith, 1776: An Inquiry into the Nature and
Causes of the Wealth of Nations
• Government should:
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Protect private property
Enforce contracts (agencies, courts)
Settle disputes (courts)
Protect business from foreign competition
• Tariffs
• Regulations
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Market structure
• 164 the nature and degree of competition
among firms operating in the same industry
• Types include:
– Perfect competition
– Monopolistic competition
– Oligopoly
– Monopoly
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Perfect competition
• 164 Characterized by
• Large number of well-informed, independent
– Buyers
– Sellers
• Who exchange identical products
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Imperfect competition
• Market structure characterized by a lack of
one or more of the conditions in a perfect
competition market.
– US firms and industries fall in this structure
• Monopolistic competition
• Oligopoly
• Monopoly
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Monopolistic competition
• 166 there are no identical products as in a perfect competition market
• Product differentiation:
• Producers put differences in their products to attract consumers. Includes:
– Quality
• Design
• Materials
• Testimony/famous name
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Store location
Store design
Manner of payment
Delivery
Packaging
Service
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Non-price competition
• 166 uses
– Advertising
– Giveaways
– Rebates
– Coupons
– Promotional campaigns
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Logos-what does the company do?
• Germany, cosmetic
company
• Britain, grocery chain
• US, software company
• Japan, telephone
service
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oligopoly
• 167 a market structure in which a very few
large sellers dominate the industry.
• Petroleum:
• Phone service:
• Media Communications:
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Collusion
• 168 a formal agreement to set prices to not behave in a
competitive, but a cooperative way for producers.
includes…..
• Price-fixing
– Agreeing to charge the same or similar price for a product.
• Market is divided so each company wins
– price stays above the fair market price
• Because collusion restrains free trade, it is illegal in the
US
• Buys politician support
– Prevent regulation or reduce taxes/fees
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Monopoly
• Is a market structure with only one seller of a
particular product.
– Very rare
– Close situations would be
• Phone company
• Cable company
• American tradition and legal history has been
against monopolies.
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Advertising
• Contributes to an informed public with
information about markets and products.
• Just copy the type of advert and listen to the
description…..
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Advertising Techniques
(Just copy the ad type name)
• AVANTE GARDE
The suggestion that using this product puts the user
ahead of the times
– e.g. a toy manufacturer encourages kids to be the first on
their block to have a new toy.
• FACTS AND FIGURES
Statistics and objective factual information is used
to prove the superiority of the product
– e.g. a car manufacturer quotes the amount of time it
takes their car to get from 0 to 100 k.p.h. or mpg
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Advertising Techniques
• WEASEL WORDS
• “Weasel words" are used to suggest a positive meaning
without actually really making any guarantee
– e.g. a scientist says that a diet product might help you to lose weight
the way it helped him to lose weight.
• MAGIC INGREDIENTS
• The suggestion that some almost miraculous discovery
makes the product exceptionally effective
– e.g. a pharmaceutical manufacturer describes a special coating that
makes their pain reliever less irritating to the stomach than a
competitor`s.
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Advertising Techniques
• PATRIOTISM
• The suggestion that purchasing this product shows your love
of your country
– e.g. a company brags about its product being made in America and
employing American workers.
• DIVERSION
• Diversion seems to tackle a problem or issue, but then
throws in an emotional non-sequitor or distraction.
– e.g. a tobacco company talks about health and smoking, but then
shows a rugged cowboy smoking a cigarette after a long day of hard
work.
– A 50s advert
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Advertising Techniques
• TRANSFER
Words and ideas with positive connotations are used to
suggest that the positive qualities should be associated with
the product and the user
– e.g. a textile manufacturer wanting people to wear their product to
stay cool during the summer shows people wearing fashions made
from their cloth at a sunny seaside setting where there is a cool
breeze.
• PLAIN FOLKS
• The suggestion that the product is a practical product of
good value for ordinary people
– e.g. a cereal manufacturer shows an ordinary family sitting down to
breakfast and enjoying their product.
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Advertising Techniques
• SNOB APPEAL
The suggestion that the use of the product makes the
customer part of an elite group with a luxurious and
glamorous life style
– e.g. a coffee manufacturer shows people dressed in formal gowns
and tuxedos drinking their brand at an art gallery.
• BRIBERY
• Bribery seems to give a desirable extra something. We
humans tend to be greedy.
– e.g. Buy a burger; get another free.
• TESTIMONIAL
A famous personality is used to endorse the product
– e.g. a famous basketball player (Michael Jordan) recommends a
particular brand of shoes.
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Advertising Techniques
• WIT AND HUMOR
Customers are attracted to products that divert the
audience by giving viewers a reason to laugh or to
be entertained by clever use of visuals or language.
– e.g. “I can’t believe I ate the whole thing” is repeated by
a man with a sour stomach that only the seltzer product
can make feel better.”
• SIMPLE SOLUTIONS
• Avoid complexities and attack many problems with
one solution.
– e.g. Buy this makeup and you will be attractive, popular,
and happy.
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Advertising Techniques
• CARD STACKING
• Advertiser’s stress is on positive qualities and ignores the
negative ones.
– e.g., if a brand of snack food is loaded with sugar (and calories), the
commercial may boast that the product is low in fat, which implies
that it is also low in calories.
– Card-Stacking is such a prevalent rational propaganda technique that
gives us only part of the picture.
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Advertising Techniques
• GLITTERING GENERALITIES
The glittering generalities technique uses appealing
words and images to sell the product.
– e.g. The message this commercial gives, though
indirectly, is that if you buy the item,
• you will be using a wonderful product, and it will change your
life.
• This cosmetic will make you look younger,
• this car will give you status,
• this magazine will make you a leader
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Advertising Techniques
• BANDWAGON
Bandwagon is a form of propaganda that exploits
the desire of most people to join the crowd or be on
the winning side, and avoid winding up on the
losing side.
• Few of us would want to wear nerdy cloths, smell
differently from everyone else, or be unpopular.
– e.g. The popularity of a product is important to many
people. Even if most of us say we make out own choice
when buying something we often choose well-advertised
items- the popular ones.
– Anti-perspirent
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Extra Credit Offer
• Find a sample of any type of ad in our notes.
• Identify the ad type the sample matches
• Explain how the sample matches the criteria in
the ad type’s definition.
• 12 pts.
• Due in two weeks from this lesson.
• (nobody may do the same advertisement: first
come, first served.)
• If you want to use a video, do this as a PPT.
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Natural monopoly
• 170 a market where the costs of production
are minimized by having a single firm produce
the product
• Public utilities:
– Natural gas
– Water
– Power
– phone
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Economy of scale
• 170 Condition where the average cost of
production gets lower as a firm gets larger.
• Coca-Cola is an example
• Internet Cloud technology
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Geographic monopoly
• 170 based on the absence of other sellers in a
part of a country or the world.
– Disneyland food, drinks, and rentals
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Technological monopoly
• 170 based on ownership and control of a
– manufacturing method
– process
– scientific advance
– Patents/copyrights
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Government monopoly
• 170 owned and operated by the government
• National
– Weapons grade uranium
– USPS
• State
– State liquor stores
• Local
– Water use
– School transportation
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Section 2 Market Failures
Terms: Market Failure
• 173 Occurs when the following conditions are
significantly altered
– Adequate competition exists in all markets
– Buyers and sellers are reasonably informed about
markets’ conditions and opportunities
– Free movement of resources from one industry to
another
– Prices must reasonably reflect costs of production
(including rewards to producers)
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externality
• 175 a benefit or problem received by an
uninvolved third party by an economic
activity…..
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Negative externality
• 175 Any harm, cost, or inconvenience
suffered by a third party because of an
economic activity
• Neighbors of Universal City in Los Angeles
must put up with activities late into the night,
especially in summer.
– Universal is slowly buying up neighboring
property, eventually clearing out the neighbors
and making it possible for the park to expand.
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Positive externality
• A benefit enjoyed by an uninvolved third party
because of an economic activity
– EC: What is the positive externality this woman has
gained? Why? (2)
– She runs while on the phone and the extended
battery lets her talk longer (and run farther, helping
her lose weight).
– Imagine when the new solar batteries for phones are
marketed.
• Developed at Stanford University
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Public goods
• 176 products collectively consumed by
“everyone”
• Use by an individual does not diminish the
satisfaction or value available to others.
– National defense
– Flood control measures
– Highways
– Police and fire protection
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Hwk Assessments, Class Work,
to Know
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CH 7, S1
• 1 (just list them, we have answers already)
– Perfect competition
– Monopolistic competition
– Oligopoly
– Monopoly
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CH 7, S1
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Large number of buyers and sellers,
Deal in identical products
Act independently
Are well informed
Ease of entry into market
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CH 7, S1
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Many competitors
Similar item or service
Entry to market is easy
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CH 7, S1
• 5
• Others must follow to maintain market share
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CH 7, S1
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Natural
Geographic
Technological
Government
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CH 7, S2
• 1
• Without it, productive resources will not be
allocated efficiently.
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CH 7, S2
• 3
• It keeps any one competitor from becoming
too powerful
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CH 7, S2
• 4
• without it, producers and consumers are
unaware of products or services that would
benefit them.
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CH 7, S2
• 5
• Unable to sell homes
• Not willing to leave
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CH 7, S2
• 6
• Both affect a third party who is uninvolved:
• Positive—
– benefits
• Negative—
– Harms, costs, inconveniences
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WE Image, p. 167
• Questions:
• 1. Cultural characteristics influence how people
– Perceive names
– Translate meanings differently from what is expected
• 2. Brand names and labeling are a vital part of
product differentiation
– They influence people’s perceptions of a product.
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6 Images, p. 168
• Question
• To make each product seem different and
therefore better; so that people will buy it.
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6 Images, p. 169
• Question
• Monopolistic competition
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12 Image, p. 170
• Question
• Should reflect special product characteristics
individuals prefer
– Utility
– Familiarity
• Logo
• Brand
– Style/taste
– Trend
– Comfort/convenience
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12 Image, p. 171
• Question
• Natural monopoly is a market situation where
costs are minimized by having one producer:
– It is efficient to have one natural gas company as
many gas companies would require separate pipe
systems underground.
• geographic monopoly exists because of its
location
– Whereas there are many general stores, there is only
one on this stretch of highway.
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Brief Response
• While some monopolies can be useful or
tolerated, most monopolies are
considered to be dangerous to a nation.
Explain.
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