This preview shows page 1. Sign up to view the full content.
Unformatted text preview: rice because some other
buyer pays a lower price? For example,
does some 30-year-old end up paying
more for a dinner because some people
get a “senior discount”?
ANSWER: No, but most people seem to
think it works this way. The seller wants to
charge both the 30-year-old and the older
person the highest price each is willing and
able to pay. If possible, the seller would
charge the older person $20 for the dinner 08 (186-221) EMC Chap 08 11/17/05 5:29 PM Page 219 Do you think
some people pay
more for a medical procedure
pay less? How
might an economist answer this
question? instead of $15. If the seller did charge $20
to the older person, that seller wouldn’t
then be content enough to charge the 30year-old only $18 for the dinner. The seller
would still charge the 30-year-old $20 for
the dinner. Again, the objective is to charge
everyone the highest price he or she is willing and able to pay, no matter what someone else pays. Price Discrimination and the Law
The general perception is that price discrimination is illegal in the United States. It is Defining Terms
a. oligopolistic market
b. cartel agreement
c. price discrimination Reviewing Facts and
2. Why might a firm that
voluntarily entered into a
cartel agreement decide
to cheat on (or breach)
3. Why are oligopolistic
firms price searchers? illegal under certain conditions. For example,
it is illegal if a seller price discriminates, and, as
a result, injures competition (which usually
means reducing the amount or intensity of
competition in the market). It is also usually
illegal if one of the discriminating sales crosses
state lines (for example, when a seller sells a
good for less in one state than in another state
and the difference in price is not warranted by
a difference in costs). Price discrimination is
not usually deemed illegal by government
authorities if no injury occurs to competition
or if the seller can show that charging a lower
price to some customers is necessary to adequately compete in the market. 4. What conditions are
necessary before a seller
can practice price
discrimination? Critical Thinking
5. If perfectly competitive
firms are price takers, and
monopolistic, monopolistic competitive, and oligopolistic firms are price
searchers, then it follows
that three times as many
firms in the real world are
price searchers than are price takers. Do you agree
or disagree? Explain your
answer. Applying Economic
6. Someone tells you that
the firms in a particular
industry are all selling
their products for the
same prices. Does it follow that the firms have
entered into a cartel
agreement? Section 4 An Oligopolistic Market 219 08 (186-221) EMC Chap 08 11/17/05 5:29 PM Page 220 Economics Vocabulary
Be sure you know and remember the following
key points from the chapter sections. Section 1
The four types of market structure are perfectly competitive, monopolistic, monopolistic
competitive, and oligopolistic markets.
A perfectly competitive market has many buyers and sellers who have relevant information
about prices, quality, and other factors; its
firms sell identical goods; and market entry
and exit are easy. Section 2
A monopolistic market consists of one seller of
a good that has no good substitute in a market
with high barriers to entry.
A monopoly firm searches for the price at
which it can maximize its profits.
Some barriers to entry into a monopolistic
market are legal barriers. Section 3
A monopolistic competitive market includes
many buyers and sellers; firms produce and
sell slightly differentiated products; and market exit and entry are easy.
Monopolistic competitive firms are price
searchers because of the slight differentiation
in their products.
Like other firms, monopolistic competitive
firms must answer the questions of how much
to produce and what price to charge. Section 4
An oligopolistic market has few sellers, firms
sell either identical or slightly differentiated
goods, and market entry and exit are difficult.
Oligopolistic firms have some control over the
price they charge.
The barriers to market entry limit the amount
of potential competition for oligopolistic firms. 220 Chapter 8 Competition and Markets To reinforce your knowledge of the key terms in
this chapter, fill in the following blanks on a separate piece of paper with the appropriate word or
1. A(n) ______ is a seller that can sell all its output
at the equilibrium price but none at 1 penny
2. The conditions that characterize ______
include one seller, no close substitutes for the
good the seller sells, and high barriers to entry.
3. A(n) ______ can sell some of its output at various prices, although it sells less output at higher
4. A(n) ______ is a monopoly that is legally protected from competition.
5. A company that ends up being the only seller of
a good because of its low average total cost is
called a(n) ______.
6. The conditions that characterize ______
include many buyers and sellers, firms that sell
slightly differentiated products, and easy entry
into and exit from the market.
7. The condit...
View Full Document
This document was uploaded on 01/16/2014.
- Winter '14