>> monday, october 7

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>> MONDAY, OCTOBER 7 <<

Entry Task:

Think about a product you purchase

often and its current price. If the price

went up, would you still purchase it?

Is there a product you'd pay ANY

amount for?

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MICROECONOMICSUNIT TWO

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UNIT TWO: MICROECONOMICS

Chapter 7: Demand & Supply

➢ Demand

➢ The Demand Curve & Elasticity of Demand

➢ The Law of Supply & the Supply Curve

➢ Putting Supply & Demand Together

Chapter 8: Business Organizations

➢ Starting a Business

➢ Sole Proprietorships & Partnerships

➢ The Corporate World & Franchises

Chapter 9: Competition & Monopolies

➢ Perfect Competition

➢ Monopoly, Oligopoly, Monopolistic Competition

➢ Government Policies Toward Competition

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➢ Demand




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7.1: Demand

The Marketplace

Main Idea / Learning Objective: Understand that in a market

economy, buyers & sellers set prices.

➢ Question: Have you ever sold something? How did you

decide what price to set?

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7.1: Demand

How do people in the marketplace decide what to buy

and at what price?

➢ Demand: the amount of a good or service that people are

able & willing to buy at various possible prices during a

specified time period.

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7.1: Demand

What is a marketplace?

A market is the process of freely exchanging goods &

services between buyers and sellers

➢ It can be local, national, international, or a combo

➢ In a market economy, individuals decide for themselves

the answers to WHAT? HOW? and FOR WHOM?

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7.1: Demand

Examples of markets

Not just a supermarket!

➢ Stores

➢ Services

➢ Entertainment

➢ Internet shopping

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7.1: Demand

The basis of activity in a market economy is the principle

of voluntary exchange.

Voluntary exchange is a transaction in which the buyer &

seller exercise their economic freedom by working out their

own terms of exchange.

➢ They work toward a satisfactory exchange of

goods/services

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7.1: Demand

In a market economy, buyers have the choice about how

to spend income & sellers have the choice about how to

sell products

➢ With voluntary exchange, sellers' problem of what to

charge + buyers' problem of how much to pay = solved

voluntarily in the market

➢ Supply & demand analysis can explain cause & effect in

relation to price

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7.1: Demand

Example of voluntary exchange

➢ Seller of cars sets a certain price for a Honda Civic based

on his/her view of market conditions.

➢ Buyer of car (through action of buying) agrees to the

product & the price.

➢ Both the buyer & seller must believe they're better off after

the exchange (B: happier, S: richer)

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7.1: Demand

The Law of Demand

Main Idea / Learning Objective: Comprehend & apply the law

of demand, which states that as price goes up, quantity

demanded goes down, and vice-versa

➢ Question: Can you think of a common household item that

was once very expensive but is now much cheaper?

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7.1: Demand

Reminder: demand represents all the different quantities of a

good/service that consumers will purchase at various prices

➢ It includes the WILLINGNESS & ABILITY to pay

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7.1: Demand

Law of demand: an economic rule stating that the quantity

demanded & price move in opposite directions

➢ There is an inverse relationship between quantity

demanded & price

➢ How people react to changing prices in terms of quantity

demanded

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7.1: Demand

Example of law of demand

➢ Price of Chipotle burrito is $8.99

➢ If price goes up to $19.99, fewer people would buy it.

➢ Only a few people would buy it if price went up to $27.99

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7.1: Demand

There are several factors that explain the inverse

relationship between price & quantity demanded.

1. Real income (purchasing power)

2. Possible substitutes

3. Diminishing marginal utility

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7.1: Demand

Real Income Effect

Economic rule stating that individuals cannot keep buying the

same quantity of a product if its price rises while their income

stays the same

➢ No one will ever be able to buy everything he/she wants.

People's incomes limit spending.

➢ Real Income: purchasing power

➢ Real Income Effect forces you to make a trade-off

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7.1: Demand

Example of Real Income Effect

➢ You spend $40 on gas two times per month.

➢ Gas prices rise and you now to have to spend $50 on gas

each time you go to the station.

➢ If prices keep rising and your income stays the same,

eventually you wouldn't be able to fill up two times a month

because your real income has dropped.

➢ To keep buying gas, you'd need to cut back on other things.

Note: real income effect works in the other direction too!

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7.1: Demand

Substitute Effect

Economic rule if two items satisfy the same need and the

price of one rises, people will buy more of the other.

➢ Think about this: two items are not exactly the same but

basically satisfy the same need and are about the same

cost. If price of one falls, people will most likely buy it

instead of the other now higher-priced good.

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7.1: Demand

Examples of Substitute Effect

➢ Buying your usual daily shampoo: Herbal Essences vs

Garnier Fructis vs TRESemme

➢ Buying your weekly pack of sparkling water: La Croix vs

Spindrift vs bubly

➢ Ordering a pizza for a Super Bowl party: Dominoes vs

Pizza Hut vs Papa Johns

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7.1: Demand

Diminishing Marginal Utility

Almost everything people like, deserve, use, think they'd like

to use – gives satisfaction

➢ This is called utility – the ability of any good or service to

satisfy customer wants

➢ Based on utility, people decide what to buy & how much

they're willing to pay – must think about how much

satisfaction they'll get from the product

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7.1: Demand

Law of Diminishing Marginal Utility

Rule stating that additional satisfaction a consumer gets from

purchasing one more unit of a product will lessen with each

additional unit bought

➢ Marginal utility: additional amount of satisfaction

➢ People stop buying an item when satisfaction from the

next unit of the same items becomes less than the price

paid for it

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7.1: Demand

Examples of Law of Diminishing Marginal Utility

➢ You're at a Mariners game on a hot summer day and you're thinking about buying a bottle of water

➢ At $4 per bottle, how many would you buy?

➢ That depends on the utility you expect to receive from each

additional bottle

➢ At some point, you'll stop buying bottles of water. Maybe you don't want to wait in line or you're no longer thirsty.

➢ The satisfaction you ger from that additional drink is less than

the value you place on its cost.

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7.1: Demand

7.1 Review

➢ Today's Exit Ticket: Think of an example (from your life) of

each of the 3 factors that explain the inverse relationship

between price & quantity demanded. Describe how each

example demonstrates its corresponding factor.

➢ Complete 7.1 Guided Reading. You'll get a stamp for

completion tomorrow at the start of class.

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>> TUESDAY, OCTOBER 8 <<

Entry Task:

Think about a product where the demand is much

higher than its supply? Why is that so?

Take out your 7.1 Guided Reading to be stamped.

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➢ Demand




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7.2: The Demand Curve & Elasticity of Demand

Graphing the Demand Curve

Main Idea / Learning Objective: Be able to read and draw a

demand curve – a graph that shows the relationship between

the price of an item and the quantity demanded

➢ Question: If the price of a movie ticket suddenly went up to

$32, how often would you go to the movies? What if the

ticket price suddenly dropped to $4?

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How can you learn to distinguish between a change in

quantity demanded & a change in demand?

The law of demand can be graphed – showing the inverse

relationship between price & quantity demanded.


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Pretend the DVDs are Chipotle burritos...


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Demand Schedule

Table showing quantities demanded at different possible

prices

➢ Numbers show that as the price of the Chipotle

burrito decreases, the quantity demanded increases.


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Demand Curve

Downward-sloping line that shows in graph form the

quantities demanded at each possible price

➢ Numbers from the demand schedule plotted into a graph

➢ Horizontal axis = quantity demanded

➢ Vertical axis = price per Chipotle burrito

➢ The connecting points for each pair of figures is known as

the demand curve


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Determinants of Demand

Main Idea / Learning Objective: Interpret a change in the

demand for a particular item as it shifts the entire demand

curve to the left or right.

➢ Question: Think of a product or service you used to buy a

lot but don't anymore. Did this happen because of

changing trends, a change in your income, or something

else?


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7.2: The Demand & Elasticity of Demand

Many factors can affect demand for a specific product or

service. These are called Determinants of Demand:

➢ Changes in population

➢ Changes in income

➢ Changes in tastes & preferences

➢ Substitutes

➢ Complementary goods

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Changes in Population

➢ When population increases, opportunities to buy & sell

increase.

➢ Naturally, the demand for most products then increases.

➢ This means that the demand curve shifts to the right.

➢ At each price, more items will be demanded simply

because the consumer population increases.


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Changes in Income

➢ The demand for most goods & services depends on

income.

➢ Your demand for an item would decrease if your income

dropped in half and you expected it to stay there.

➢ You'd buy fewer of the item at all possible prices.

➢ This means that the demand curve would shift to the left.


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Changes in Tastes & Preferences

➢ One of the key factors that determine demand is people's

taste & preferences – which refer to what people like &

prefer to choose.

➢ When a product becomes a fad, more of the products are

demanded at sold at every possible price.

➢ This means that the demand curve would shift to the right.


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Substitutes

➢ Substitutes are goods used in place of one another.

➢ Availability & price of substitutes affect demand.

➢ Suppose the price of butter remains the same, but the

price of margarine falls. People then will buy more

margarine and less butter at all prices of butter.

➢ This means that the demand curve for butter will shift left.


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Complementary Goods

➢ Complements are products that are generally bought & sold

together.

➢ When two goods are complementary, the decrease in the price of

one will increase the demand for it as well as its complementary

good.

➢ If the price for an XBox drops, people will probably buy more of them.

Subsequently, they will also probably buy more XBox games to go

with the console.

➢ This means that the demand curve for XBox games will shift to the

right.


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The Price Elasticity of Demand

Main Idea / Learning Objective: Explain the elasticity of

demand, which measures how much the quantity demanded

changes when price goes up or down.

➢ Question: Do rising gas prices affect how much gas you

are willing to buy?


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Elasticity

Economic concept dealing with consumers' responsiveness

to an increase or decrease in the price of a product.

➢ Simply stated, price responsiveness


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The Price Elasticity of Demand

Economic concept that deals with how much demand varies

according to changes in price


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Elastic Demand

Situation in which a given rise or fall in a product's price

greatly affects the amount that people are willing to buy

➢ When demand is elastic, consumers can be flexible about

buying or not buying an item.

➢ For some goods, a rise or fall in price greatly affects the

amount people are willing to buy.


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Examples of Elastic Products

➢ Coffee – competing brands are essentially almost the

same

➢ Luxury goods – goods that people want but don't need to

survive, i.e. exotic vacations, high-end electronic items,

expensive cars

➢ Luxury foods – steak, lobster


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Inelastic Demand

Situation in which a product's price change has little impact

on the quantity demanded by consumers

➢ If a price change does not result in substantial change in

quantity demanded

➢ Consumers are not usually flexible with these items & will

purchase some of the items no matter what they cost.


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Examples of Inelastic Products

➢ Staple foods (milk, eggs, flour)

➢ Staple products, like light bulbs

➢ Spices, like salt & pepper

➢ Certain types of medicine

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What determines price elasticity of demand?

At least 3 factors:

➢ Existence of substitutes

➢ Percentage of a person's total budget devoted to the

purchase of that good

➢ Time consumers are given to adjust to a change in price

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Existence of substitutes

➢ The more substitutes that exist for a product, the more

responsive consumers will be to a change in the price of

that good

➢ For example, someone who is diabetic needs insulin,

which virtually has no substitutes. The price elasticity of

insulin is inelastic.

➢ This is opposite for a good like soft drinks. If price goes

up, consumers will likely switch to a substitute.


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Percentage of a person's total budget devoted to the purchase of that good

➢ For example, the portion of a family's budget devoted to

pepper is very small.

➢ Even if the price of pepper doubles (say to $5.99), most people will keep buying the same amount. The demand for pepper is

relatively inelastic.

➢ This is opposite for the housing market (elastic) because it represents a large proportion of a household's yearly budget.


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Time consumers are given to adjust to a change in price

➢ People take time to adjust to price changes – and this time affects

demand elasticity.

➢ If the price of electricity drastically rose tomorrow, you'd have a hard

time adjusting behavior immediately. You would still need to use the

same amount you used yesterday. (inelastic)

➢ As time goes by, you'd be able to adjust the amount of electricity you

use, gradually using less and less. The longer amount of time

allowed to reduce electricity use, the greater the price elasticity of

demand.


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7.1: Demand

7.1 Review

➢ Today's Exit Ticket: Think of an example (from your life) of a product

that would shift the curve to the right for each of the following factors

that affect demand:

▪ Changes in population

▪ Changes in income

▪ Changes in tastes & preferences

▪ Substitutes

▪ Complementary goods

➢ Complete 7.2 Guided Reading. You'll get a stamp for completion

Thursday at the start of class.

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>> THURSDAY, OCTOBER 10 <<

Entry Task:

Review your 7.1 & 7.2 notes. We're

going to do a class recap on those

two sections momentarily!

Be ready to record your Area event(s)

with me today.

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Daily Overview

✓7.1 & 7.1 Review & Recap

✓7.3

✓DECA competitive event sign-ups

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7.1 & 7.2 Review (Demand)

7.1 -- Demand

▪ What is a marketplace?

▪ What is voluntary exchange?

▪ What is the law of demand?

▪ What 3 factors affect the relationship between price & quantity demanded?

7.2 -- The Demand Curve & Elasticity of Demand

▪ What does a demand curve look like?

▪ What's the difference between change in quantity demanded & change in demand?

▪ What are the 5 factors that can affect demand?

▪ What is elasticity?

▪ Give an example of inelastic demand.

▪ Give an example of elastic demand.

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7.1 Key Take-Aways

Price & Quantity Demanded have an inverse relationship.

This relationship can be explained by...

1. Real income (purchasing power)

2. Possible substitutes

3. Diminishing marginal utility

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7.2 Key Take-Aways

A demand curve is always downward-sloping.

Determinants of Demand (aka, a shift of the

curve to the right or left could be caused by):

▪ Changes in population

▪ Changes in income

▪ Changes in tastes/preferences

▪ Substitutes

▪ Complementary goods

Price Elasticity of Demand: HOW

MUCH consumers respond to a

given change in price.

➢ Elastic Demand:

▪ Change in price GREATLY

affects the amount people are

willing to buy

▪ Consumers can be flexible

▪ Ex: coffee, luxury items

➢ Inelastic Demand:

▪ Change in price does NOT

result in big change in quantity

demanded

▪ Consumers cannot be flexible

▪ Ex: insulin, staple foods

Determinants of Price Elasticity of Demand:

1. Substitutes

2. Percentage of budget devoted to good

3. Time to adjust

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➢ Demand




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7.3: The Law of Supply & The Supply Curve

Profits & the Law of Supply

Main Idea / Learning Objective: Understand the law of supply

– that states as price goes up, quantity supplied goes up

(and vice versa).

➢ Question: Would you be willing to work more hours at your

job for the same wages?

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To understand how prices are determined, you must look

at both demand AND supply

➢ Supply: The willingness & ability of producers to provide

goods & services at various prices in the marketplace.

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The Law of Supply

Economic rule stating that price & quantity supplied move in

the same direction (aka – a direct relationship).

➢ Quantity supplied: the amount of good or service that a

producer is willing & able to supply at a specific price

➢ Generally, a larger quantity will be supplied at higher

prices than at lower prices.

The Law of Supply

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Profit Incentive = the basis of the Law of Supply

➢ Profit is one of the factors that motivates people in a

market economy.

➢ In the case of supply: the higher the price of a good, the

greater the incentive for the producer to produce more.

➢ Higher price = higher revenues & covers additional costs of

producing more

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What kind of relationship exists between price & quantity supplied?

CHECK-IN QUESTION

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The Supply Curve

Main Idea / Learning Objective: Be able to read and draw

a supply curve – a graph that shows the relationship

between the price of an item and the quantity supplied

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Supply Schedule

Table showing quantities supplied at various possible prices

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Supply Curve

Upward-sloping line that shows in graph form the quantities

supplied at each possible price

➢ Horizontal axis = quantities supplied

➢ Vertical axis = price

➢ Each intersection of price & quantity supplied represents a point on

the graph

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What is a normal supply curve always going to look like?

CHECK-IN QUESTION

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Determinants of Supply

Main Idea / Learning Objective: Interpret a change in the

supply for a particular item as it shifts the entire supply curve

to the left or right.

➢ Question: Why are smartphones so much more common

now than they were 8 years ago?


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Many factors can affect supply for a specific product or

service. These are called Determinants of Supply:

➢ Price of Inputs

➢ Number of Firms in the Industry

➢ Taxes

➢ Technology


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Price of Inputs

➢ If the price of inputs (raw materials, wages, etc) needed to

make a product drops, a producer can supply MORE at a

lower price

➢ This would cause the supply curve to shift to the right.

➢ In contrast, if the cost of inputs increases, the supply curve

would shift to the left. (suppliers would supply fewer goods

for sale at every possible price)


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Number of Firms in the Industry

➢ The larger the number of suppliers, the greater the market

supply.

➢ As more firms enter the industry, greater quantities of their

good or service are supplied at every price – the supply

curve shifts to the right.

➢ In contrast, if some suppliers leave the market, fewer

quantities of the good/service are supplied at each price –

the supply curve shifts to the left.


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Taxes

➢ If the government imposes more taxes on the production of

certain items, businesses will not be able to supply as

much as before because cost of production will rise.

➢ This will cause the supply curve to shift to the left.


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Technology

➢ Recall the definition of technology from Unit 1

➢ Any improvement in technology will increase supply – or

shift the supply curve to the right.

➢ This is simply because new tech allows for suppliers to

make more goods for a lower cost.


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If production costs increase, what happens to the supply curve?

CHECK-IN QUESTION

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The Law of Diminishing Returns

Main Idea / Learning Objective: Explain that when a business

wants to expand, it has to consider how much expansion will

really help the business.

➢ Question: What do you think... When is hiring more

workers a good idea? When is it not?


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Think about this:

➢ Your business has 10 machines & employs 10 workers. You want to

expand production.

➢ If you hire an 11th worker, production increases by 1,000 units per

week.

➢ If you hire a 12th worker, production increases by only 900 units per

week.

➢ If you hire more workers, production will increase; however, the rate of

increase will fall.

Why do you think that is?


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Understand this:

➢ Maybe there are not enough machines for everyone. Maybe

workers are getting in each other's way.

➢ If you continue to hire more workers, eventually the overall input

will decrease.

➢ The cost of each worker is a marginal cost, and the increased

output is the marginal return.


Diminishing Returns:

➢ At some point as you

expand production, the

additional workers you hire

do not add as much total

output as the previous

workers hired.

➢ Eventually, marginal cost

will be greater than

marginal return.

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Law of Diminishing Returns

Economic rule stating that, as more units of a factor of

production are added to the other factors of production, after

some point, total output continues to increase but at a

diminishing rate

➢ Businesses analyze marginal costs & marginal returns to

determine how many workers to hire & how many units to

produce


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▪ Complete 7.3 Guided Reading. You'll

get a stamp for completion Thursday at

the start of class.


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>> FRIYAY, OCTOBER 11 <<

Entry Task:

• Review your 7.3 notes. We're

going to do a class recap on those

two sections momentarily!

• Be ready to record your Area

event(s) with me today.

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7.3 Review (Supply)

▪ What does a normal supply curve look like?

▪ If cost of production (cost of inputs) decreases, which way will the

supply curve shift?

▪ If some suppliers leave the market, which way will the supply curve

shift?

▪ If the government imposes a new tax on a good, which way will the

supply curve shift?

▪ If there is a technology advancement on the production of cellphones,

which way will the supply curve shift?

▪ What happens as you continue to increase the number of workers?

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7.3 Key Take-Aways

Price & Quantity Supplied have a direct relationship.

These are called Determinants of

Supply: (aka, a shift of the curve to

the right or left could be caused by):

• Price of Inputs

• Number of Firms in the Industry• Taxes

• Technology

Diminishing Marginal Returns

As more units of a factor of production

are added to the other factors of

production, after some point, total output

continues to increase but at a diminishing rate

➢ marginal cost will be greater

than marginal return.

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➢ Demand




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7.4: Putting Supply & Demand Together

Equilibrium Price

Main Idea / Learning Objective: Understand that in free markets, prices

are determined by the interaction of supply and demand.

➢ Think: When a new electronic comes out, they are often

too expensive for most people to buy. However, what happens to the

price over time?

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In the real world...

➢ Supply & Demand operate together.

➢ As price of a good goes down, quantity demanded goes up and

quantity supplied goes down (and vice versa)

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Equilibrium Price

The price at which the amount producers are willing to supply is EQUAL

to the amount consumers are willing to pay

➢ This is where the price at which quantity demanded and quantity

supplied meet!

➢ On a graph, it's where the two curves intersect.

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How does the market reach equilibrium price?

Look at the demand & supply schedules!

➢ Sellers think price should be $20, and they produce 1,100 million units.

➢ At $20, buyers will only purchase 100 million units.

➢ To get rid of the surplus, sellers lower the price to $10 and are willing to supply 100 million units.

➢ At $10 per unit, 1,100 million units are demanded but only 100 million are supplied – causing a shortage.

➢ The price tends to change until it reaches equilibrium.

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When the supply or demand curve

shifts to the right or the left, the

equilibrium price changes as well.

➢ If the supply curve shifts to the right

because of a tech advancement, the

new equilibrium price will fall.

➢ If the demand curve shifts to the right

because population increases, the new

equilibrium price will rise.

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Practice:

Draw the supply & demand curves for the following situations. Indicate

which way the curve(s) shift, and indicate if the equilibrium price rose

or fell.

➢ Cost of inputs/production increases.

➢ Number of firms in the industry increases and the product becomes

a fad.

➢ Population decreases and the government imposes a tax on a good.

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Prices as Signals

Main Idea / Learning Objective: Comprehend the idea that in a free-

enterprise system, price functions as signals that communicate

information and coordinate the activities of producers and consumers.

➢ Think: Can you recall a recent event that affected the price of an

every day item? (such as gas, food staples, etc)

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Prices serve as signals to producers & consumers.

➢ Rising prices signal producers to produce more and consumers to

purchase less.

➢ Falling prices signal producers to produce less and consumers to

purchase more.

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Shortages

Situation in which the quantity demanded is greater than the quantity

supplied at the current price

➢ If the market is left alone, shortages put pressure on prices to rise.

➢ At a higher price, consumers reduce their purchases, and suppliers

increase the quantity they want to supply.

➢ Examples: natural disasters can cause shortages of water & other

essential goods

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Surpluses

Situation in which the quantity supplied is greater than the quantity demanded

at the current price

➢ At prices above the equilibrium, suppliers produce more than consumers

want to purchase

➢ Happens when a business sets price too high or overestimates demand

➢ Surpluses = large, undesired inventories of goods

➢ This puts pressure on the price to drop to equilibrium

➢ As prices fall, suppliers have less incentive to supply as much as before,

and consumers will begin to purchase a greater quantity

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Market Forces

One of the benefits of a market economy is that when it operates without

restriction, it eliminates shortages & surpluses

➢ The market takes care of itself

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Prices Controls

Main Idea / Learning Objective: Evaluate that, under certain

circumstances, the government sometimes sets a limit on how high or

low the price of a good or service can go

➢ Think: When do you think the government is justified in setting prices

on certain goods & services? On which goods & services?

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Price CeilingA legal maximum price that may be charged for a good or service

➢ Government-set max price

➢ Example: city officials might set a price ceiling on what landlords can charge for rent

➢ Effective price ceilings (and resulting shortages) can lead to nonmarket ways of distributing goods & services

▪ Government may resort to rationing – distribution of goods & services based on something other than price

▪ Could lead to black market – "underground" or illegal market in which goods are traded at prices above their max price, or in which illegal goods are sold

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Price CeilingIf more people would like to

rent at the government-

controlled price, but

apartment owners are not

willing to build more rental

units if they can't charge

higher rent, a shortage

occurs.

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Price Floor

A legal minimum price below which a good or service may not be sold

➢ Government-set min price

➢ These are more common than price ceiling

➢ Prevent prices from dropping too low

➢ Example: fast-food joint wants to pay students $13 per hour, but

government sets minimum wage of $15 per hour

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Price FloorA fast-good joint wants to

hire students at $13 per

hour, but the government

sets a minimum wage of

$15 per hour. At that wage,

not all the students who

want to work will get hired,

so there will be a surplus of

unemployed students.

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▪ Complete 7.4 Guided Reading. You'll

get a stamp for completion next

Thursday at the start of class.


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7.1 vocab & concepts:

▪ Demand

▪ Supply

▪ Market

▪ Voluntary exchange

▪ Law of demand

▪ Real income effect

▪ Substitution effect

▪ Utility

▪ Marginal utility

▪ Law of diminishing marginal

utility

▪ 3 factors that explain law of

demand

Chapter 7 Quiz Review


▪ Demand schedule

▪ Demand curve

▪ Complementary good

▪ Elasticity

▪ Price elasticity of demand

▪ Elastic demand

▪ Inelastic demand

▪ 5 determinants of demand

▪ 3 determinants of price elasticity

of demand

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▪ Law of supply

▪ Quantity supplied

▪ Supply schedule

▪ Supply curve

▪ Technology

▪ Law of diminishing returns

▪ 4 determinants of supply

Chapter 7 Quiz Review


▪ Equilibrium price

▪ Shortage

▪ Surplus

▪ Price ceiling

▪ Rationing

▪ Black market

▪ Price floor

z

Reminders

✓ No school Monday.

✓ I'll be out Tuesday & it'll be a Chapter 7

independent study day. I recommend

bringing your book to class.

✓ PSAT testing Wednesday. No class.

✓ Thursday we'll take the Chapter 7 quiz and

Friday we'll begin on Chapter 8!

z

>> Thursday, OCTOBER 17 <<

Entry Task:

• Take out your notes & study

materials for Ch 7. I'll give you 5

minutes to study!

• Phones & laptops away.

z

>> FRIDAY, OCTOBER 18 <<

Entry Task:

• Ask someone at your table: 1 fun

thing they're doing this weekend!

Be prepared to share.

z


Entry Task:

What is your favorite "Shark Tank"

product or your favorite start-up

business?

z





z

8.1: Starting a Business

Vocabulary

▪ Entrepreneur

▪ Startup

▪ Small-business incubator

▪ Inventory

▪ Receipts

z


Getting Started

Main Idea / Learning Objective: Understand that businesses are started

by entrepreneurs who are willing to take risks.

➢ Question: If you could start a business, what kind of business would

you start?

z


Entrepreneur

Person who organizes, manages, and assumes the risks of a business

in order to gain profits.

Why become one?

➢ To be their own boss

➢ To make profits

➢ To take on a challenge

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Steps to become an Entrepreneur

➢ Gather relevant factors of production to produce their good/service

➢ Decide on the form of business organization that best suits their

purposes

➢ Learn as much as possible about the business he or she plans to start

➢ Learn about the laws, regulations, & tax codes that apply

➢ Investigate potential competition

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Startup

A beginning business enterprise

➢ There are many sources of assistance and information to beginning a

startup

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Sources of Help for Business Startups

There are many sources of information available and some even provide

funding.

➢ Small Business Administration

➢ Small business incubators

➢ Local colleges & universities

➢ Local department of commerce

➢ Business-related internet sites

z


Startup Incubator

Private or government-funded agency that assists new businesses by

providing advice or low-rent building and supplies

➢ Goal: to generate job creation & economic growth, particularly in

economically depressed areas.

➢ Example: UW Comotion

https://comotion.uw.edu/

z Choose one of the startups from the list of UW Comotion startups. Create 1-2 slides OR a 8.5x11 poster & tell us:

- Startup name- When they launched- Business activities- Entrepreneurs & their background- Success

Due tomorrow!

Mini Project

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Elements of Business Operation

Main Idea / Learning Objective: Explain the four basic elements of

business operation: expenses, advertising, record keeping, & risk.

➢ Question: What would hold you back from starting your own

business?

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Expenses

▪ New equipment

▪ Wages

▪ Insurance

▪ Taxes

▪ Electricity

▪ Internet & phone service

▪ Inventory: extra supply of items used in a business, such as raw

materials or goods for sale

z


Advertising & Promotional Activities

▪ Radio & TV ads

▪ Billboards & flyers

▪ Direct mail

▪ Digital marketing

▪ Social media

▪ Events

▪ Email marketing

▪ Podcasts

▪ Video ads

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Record Keeping

▪ You must have a system to track your expenses and revenue

▪ Use online software to track your finances

▪ All legitimate business expenses can be deducted from business

receipts before taxes owed are calculated

➢ Example: Intuit QuickBooks

https://quickbooks.intuit.com/au/learn-and-support/quickbooks-

online/video-tutorials/

https://quickbooks.intuit.com/oa/get-quickbooks/?cid=ppc_G_e_US_.QB_US_GGL_Brand_Top+Terms_Exact_Search_Desktop._quickbooks_txt&gclid=Cj0KCQjwi7DtBRCLARIsAGCJWBpsy0Iu6t766syqs16alnS1xCFxCptdskN98fUrvhhXIF7Cen6ENNAaAuKWEALw_wcB&gclsrc=aw.ds

https://quickbooks.intuit.com/au/learn-and-support/quickbooks-online/video-tutorials/

z


Risks

▪ Funding

▪ Team & management

▪ Demand for your good or service

▪ Capability

▪ Economic factors

▪ Legislation & policy

▪ And so on...

z


Entry Task:

• Be prepared to give your 1-

minute presentation about

your chosen startup.

• If you haven't emailed me your

presentation, do that now.

z

DAILY OVERVIEW

✓ Startup presentations

✓ Ch 8.2 (Sole Proprietorships & Partnerships)

FYI: Chapter 8 quiz Friday!

Reminder: Finley & Frost – Thursday

Current Events!!!

z





z

8.2: Sole Proprietorships & Partnerships

Vocabulary

▪ Sole proprietorships

▪ Proprietor

▪ Unlimited liability

▪ Assets

▪ Partnership

▪ Limited partnership

▪ Limited liability company

▪ Joint venture

z


Sole Proprietorship

Main Idea / Learning Objective: Describe a sole proprietorship –

a business owned and operated by one person.

➢ Question: If you were to start a business, would you rather work

alone or with a partner? Why?

z


Sole Proprietorship

A business owned and operated by one person

▪ The most common form of business organization (23 million in the US

alone)

▪ Proprietor: the owner of a business

▪ Advantages: being your own boss; satisfaction from success; creative

control

▪ Disadvantages: demanding & time-consuming

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Sole Proprietorship Financial Advantages & Disadvantages

▪ Advantages: if the business does well, the proprietor receives all the

profits; taxes are low because owner only pays income taxes on

profits

▪ Disadvantages: owner has unlimited liability

➢ Unlimited liability: requirement that an owner is personally & fully

responsible for all losses and debts of a business (personal assets –

items of value – may be seized to pay off business debts)

z


Partnerships

Main Idea / Learning Objective: Describe a partnership – a business

owned and operated by two or more individuals

➢ Question: Think about a time you worked with a partner on a

school project. What were the advantages? Disadvantages?

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Partnership

A business that two or more individuals own and operate

▪ Partners sign an agreement that is legally binding – it describes:

➢ The duties of each partner

➢ The division of profits

➢ The distribution of assets should the partners end the agreement

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Partnerships Advantages & Disadvantages

➢ Partnerships are usually more efficient than proprietorships because

each partner can work in his or her area of expertise.

➢ Because partners have to work together, decision making is often

slower and disagreements can lead to problems.

➢ A partnership's borrowing potential is generally very good -- because

the combined value of the partners' personal & business assets is

usually greater than that of a sole proprietor

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Some partnerships are specialized.

➢ Limited partnership

➢ Limited liability company

➢ Joint venture

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Limited partnership

Special form of partnership in which one or more partners have

limited liability but no voice in management

▪ Not all partners are equal

▪ One partner is called the general partner – the person or persons

who assumes all of the management duties and has full responsibility

for the debts of the partnership

▪ The other partners are limited – they only contribute funds or

property; no management duties or liability for losses

z


Limited liability company

A type of business enterprise that protects members against losing all of

their personal wealth; members are taxed as if they were in a partnership

▪ So-called members often do not have to worry about losing their

personal wealth if the business fails with a lot of debts

▪ Similar to corporations (8.3) but are taxed as if they were partnerships

z


Joint Venture

A partnership set up for a specific purpose for a short period of time

▪ A temporary partnership

▪ Once the task is completed, the joint venture is ended

▪ Common example: when investors purchase real estate and then

resell the property for a profit

zGuided Reading 8.1 & 8.2 (bring to class Thursday)

Begin to study for Ch 8 quiz (Friday)

TO DO:

z

>> THURSDAY, OCTOBER 24 <<

Entry Task:

Think: Would you ever franchise a

business?

z

DAILY OVERVIEW

✓ Current Events (Finley & Frost)

✓ Ch 8.3 (The Corporate World & Franchises)

✓ Ch 8 review

FYI: Chapter 8 quiz Friday!

z

Chapter 8: Starting a Business




z

8.3: The Corporate World & Franchises

Vocabulary

▪ Corporation

▪ Stock

▪ Limited liability

▪ Articles of incorporation

▪ Corporate charter

▪ Common stock

▪ Dividend

▪ Preferred stock

▪ Bylaws

▪ Franchise

z


Corporations & Their Structure

Main Idea / Learning Objective: Explain that stock represents ownership

rights to a certain portion of a corporation's profits & assets.

➢ Question: What do you think of when you picture a corporation? The

office? The organizational structure? The business activity?

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What is a corporation?

A type of business organization owned by many people but treated by

law as though it were a person; it can own property, pay taxes, make

contracts, and so on.

▪ It has separate and distinct existence from the stockholders who own

the corporation's stock

▪ Stock = share of ownership in a corporation that entitles the buyer to a

certain part of the future profits & assets of the corporation

▪ AKA, ownership rights

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One of the major advantages of a corporation is limited liability.

➢ If a corporation goes bankrupt or is sued, the stockholders' losses are

limited to their investment in the firm.

One major disadvantage is that they are taxed more heavily than

other forms of business organizations.

z


How do you form a corporation?

1. Register the company with the government of the state in which it will

be headquartered.

2. Sell stock.

3. Along with the other shareholders, elect a board of directors.

z


Registering the Corporation

Every state has laws governing the formation of corporations, but most

state laws are similar.

➢ You must file an articles of incorporation

➢ If the articles are in agreement with state law, the state will grant you a

corporate charter – a license to operate granted to a corporation by

the state where it is established

z

What are articles of incorporation?

A document listing basic information about a corporation that is filed with

the state where the corporation will be headquartered. It includes:

➢ Name, address, purpose of corporation

➢ Names & address of the initial board of directors

➢ Number of shares of stock to be issued

➢ Amount of money capital to be raised through issuing stock


z

Selling Stock

You can sell shares of stock in your corporation.

➢ Common stock

➢ Preferred stock


z


Common Stock

Shares of ownership in a

corporation that give

stockholders:

▪ Voting rights

▪ A portion of future profits

(after holders of preferred

stock are paid)

▪ But NO guarantee of a

dividend

Preferred Stock

Shares of ownership in a

corporation that give

stockholders"

▪ A portion of future profits

(before any profits go to

holders of common stock)

▪ But NO voting rights

Dividend: portion of a corporation's profits

paid to its stockholders

z

Naming a Board of DirectorsTo become incorporated, you must have a board of directors

▪ The founders initially elect a board of directors; moving forward, the stockholders elect the board.

▪ Bylaws – a set of rules describing how stock will be sold & dividends will be paid and listing duties of the companies officers – govern this election.

▪ Board is responsible for: strategic planning but NOT day-to-day activities (officers do that)


z


▪ Proprietorships are the

most common type of

business organization,

but corporations

altogether make the

most revenue

z


Franchises

Main Idea / Learning Objective: Describe a franchise – an arrangement

in which a person or group obtains the right to use the name & sell the

products of another business.

➢ Question: What is your favorite fast-food chain? (it's likely a franchise)

z


Franchise

A contract in which one business (the franchisor) sells to another

business (the franchisee) the right to use the franchisor's name and sell

its products

➢ In return, the person or group must make certain payments and meet

certain requirements.

➢ Franchisee pays a fee to the franchisor that could include a

percentage of all revenues taken in.

➢ The franchisor will often help the franchisee set up the business and

may have a training program

z


McDonalds

▪ Initial down payment required when you purchase

a new restaurant (40% of the total cost) or an

existing restaurant (25% of the total cost).

▪ Down payment must come from non-borrowed

personal resources

▪ Must pay a minimum of 25% cash as a down

payment toward the purchase of a restaurant

(remaining balance of purchase price may be

financed for a period of no more than 7 years)

▪ Ongoing fees:

▪ Service fee: a monthly fee based upon the restaurant’s

sales performance (currently a service fee of 4.0% of

monthly sales).

▪ Rent: a monthly base rent or percentage rent that is a

percentage of monthly sales.

https://www.mcdonalds.com/us/en-us/about-us/franchising/acquiring-franchising.html

z


Jimmy John's

▪ $80,000 of your own cash

▪ $300,000 Net Worth

▪ Real estate that meets

specifications

https://www.ownajimmyjohns.com/?_ga=2.114629255.1698576717.1571695027-480854749.1571695027

z- Google "Top US Franchises"- Choose one- Look at what it takes to franchising that business & be prepared to share with the class

SMALL GROUP

DISCUSSION

z


Advantages of Franchising

▪ Name recognition

▪ Proven way of doing business

▪ Benefits from advertising without having to pay for it

z


Disadvantages of Franchising

▪ Loss of control

▪ Can run into legal trouble (especially if one party does not hold up its

side of the agreement)

z

CHAPTER 8 REVIEW

8.1 vocab

• Entrepreneur

• Startup

• Small-business incubator

• Inventory• Receipts

8.1 concepts

• Where entrepreneurs can find assistance

• 4 elements of business

operations

QUIZ FRIDAY!!!!!!!!

8.2 vocab

• Sole proprietorships

• Proprietor

• Unlimited liability

• Assets• Partnership

• Limited partnership

• Limited liability company

• Joint venture

8.2 concepts

• Elements of a

proprietorship

• Elements of a partnership

8.3 vocab

• Corporation

• Stock

• Limited liability

• Articles of incorporation• Corporate charter

• Common stock

• Dividend

• Preferred stock

• Bylaws• Franchise

8.3 concepts

• Advantages & disadvantages of:

corporations & franchises

• Articles of incorporation

elements

• Board of directors election• Common vs preferred

stock

z

>> FRIDAY, OCTOBER 25 <<

Entry Task:

- Find a seat. This is our new testing seating

arrangement.

- Get out your Chapter 8 notes. You have 5 minutes to

review.

- Take out your 8.1-8.3 Guided Reading. You have until

the end of class to finish & turn in to the tray.

z

CHAPTER 8 REVIEW

8.1 vocab

• Entrepreneur

• Startup

• Small-business incubator

• Inventory• Receipts

8.1 concepts

• Where entrepreneurs can find assistance

• 4 elements of business

operations

QUIZ FRIDAY!!!!!!!!

8.2 vocab

• Sole proprietorships

• Proprietor

• Unlimited liability

• Assets• Partnership

• Limited partnership

• Limited liability company

• Joint venture

8.2 concepts

• Elements of a

proprietorship

• Elements of a partnership

8.3 vocab

• Corporation

• Stock

• Limited liability

• Articles of incorporation• Corporate charter

• Common stock

• Dividend

• Preferred stock

• Bylaws• Franchise

8.3 concepts

• Advantages & disadvantages of:

corporations & franchises

• Articles of incorporation

elements

• Board of directors election• Common vs preferred

stock

z


Entry Task:

Think-Pair-Share: Why do you think

competition in the market is advantageous for

consumers (us)?

z

Why do you think competition in the market is advantageous for consumers (us)?

1. It provides us with choices.

2. Having many competing suppliers of a

product leads to lower prices.

z



➢ Monopoly, Oligopoly, & Monopolistic

Competition


z

9.1: Perfect Competition

Vocabulary

▪ Market structure

▪ Perfect competition

z


Market Structure & Perfect Competition

Main Idea / Learning Objective: Explain market structure – the extend of

competition within particular markets.

➢ Question: What if you could only go to one university? One doctor?

One grocery store? One fast food chain? How would you feel about

that? How do you think it would affect you?

z


Market Structure

The extent to which competition prevails in particular markets.

➢ In the American economy, the 4 basic market structures are:

▪ Perfect competition

▪ Monopolistic competition

▪ Oligopoly

▪ Monopoly

z


Perfect Competition

Market situation in which there are numerous buyers & sellers, and no

single buyer or seller can affect price.

➢ AKA: pure competition

z


For perfect competition to exist, 5 conditions must be met.

1. A large market

2. A nearly identical product

3. Easy entry & exit

4. Easily obtainable information

5. Independence

z


For perfect competition to exist, 5 conditions must be met.

1. A large market – numerous buyers & sellers exist for the product

2. A nearly identical product – the goods or services being sold must be nearly the same

3. Easy entry & exit – sellers already in the market can't prevent competition or entrance; the initial costs of investment are small; and the good or service is easy to learn to produce

4. Easily obtainable information – info about prices, quality, & sources of supply is easy to obtain for buyers & sellers

5. Independence – possibility of sellers or buyers working together to control the price is almost nonexistent

z


In perfect competition, there is NO control over price.

When the 5 conditions are met, the workings of supply & demand contol

the price, NOT any one seller or buyer.

➢ Supply: large number of suppliers of a nearly identical product

➢ Demand: large number of buyers who know exactly what the market

price is for the good or service

➢ Market price = equilibrium price

➢ Every seller accepts this price

z


In perfect competition, information is KEY.

➢ The ability of consumers to obtain information is key to sustaining

information.

➢ Access to the internet makes this very easy.

z


Agriculture as an Example

Main Idea / Learning Objective: Describe a common example of

perfectly competitive market structure: agriculture.

➢ Question: How much does an apple generally cost? How about a loaf

of bread? Does the price ever change much?

z


Why use agriculture as an example of perfect

competition?

➢ Because farmers have almost no control over the market

price of their goods.

z


No control over wheat prices.

z


The wheat market is a unique situation...

➢ People's demand for wheat is relatively inelastic (flexible)

➢ The market is highly dependent on conditions which farmers

(suppliers) have little or no control over, such as weather and crop

disease.

z


Benefits to Society

Intense competition in a perfectly competitive market forces price down

to one that just covers the costs of production plus a small profit.

➢ Consumers benefit because it means they're paying for only what is

put into the product.

➢ Perfectly competitive industires yield economic efficiency – inputs are

used in the most advantageous way.

z


The thing about perfect competition...

Perfectly competitive industires rarely exist in the real world.

➢ It allows no space for innovation or advertising.

➢ Product homogeneity is also viewed as an unfair condition which stunts the growth of the trade.

➢ In the real world, companies are constantly engaged in a battle, wanting to outdo their competitors – resorting to innovation, price hikes, and advertising.

➢ Perfect competition is an unrealistic concept, which leaves out the very core of economic development - improvement through innovation.

z


Entry Task:

Recall: other than perfect competition, what

are the other 3 market structures?

z

DAILY OVERVIEW

▪ Intro to 9.2

▪ Group project time!

z




Competition


z 9.2: Monopoly, Oligopoly, & Monopolistic Competition

Vocabulary

▪ Monopoly

▪ Barriers to entry

▪ Economies of scale

▪ Patent

▪ Copyright

▪ Oligopoly

▪ Product differentiation

▪ Cartel


z

Monopoly

Main Idea / Learning Objective: Describe a monopoly: when a single seller

controls the supply of a good or service and largely determines its price.

Oligopoly

Main Idea / Learning Objective: Describe an oligopoly: when an industry is

dominated by a few suppliers that exercise some control over price.

Monopolistic Competition

Main Idea / Learning Objective: Describe monopolistic competition: when a

large number of sellers offer similar but slightly different products, and each

firm and some control over price.

9.2: Monopoly, Oligopoly, & Monopolistic Competition

z- 3 students per team- Each team will be assigned 1 of the 3 market structures that were introduced today- You'll create a slide deck with your team- You'll present your slide deck to 2 other teams

GROUP PROJECTS!

z

WHAT SHOULD YOU INCLUDE??

▪ Content from your section of the book

▪ Definitions

▪ Headers & sub headers

▪ Characteristics of your assigned market structure

▪ Monopolies: the 4 types

▪ 2 examples of industries that have your assigned

market structure

z

GROUP PROJECT TEAMS

MONOPOLY 1

Ben

James Z

Addison

MONOPOLY 2

Andrew

Vikranth

Cam

MONOPOLY 3

Jack

Mason

Giancarol

OLIGOPOLY 1

Jordan

Evan

Luke

OLIGOPOLY 2

Colby

Suraj

James K

OLIGOPOLY 3

Brooke

Kaitlyn

Katy

MON. COMP. 1

Carson

Leo

Frost

MON. COMP. 2

Finley

Santi

MON. COMP. 3

Timofey

Parker

z

>> THURSDAY, HALLOWEEN <<

Entry Task:

Meet with your group member(s) to make sure

you're ready to go for your presentation!

z

GROUP PROJECT TEAMS

MONOPOLY 1

Ben

James Z

Addison

MONOPOLY 2

Andrew

Vikranth

Cam

MONOPOLY 3

Jack

Mason

Giancarol

OLIGOPOLY 1

Jordan

Evan

Luke

OLIGOPOLY 2

Colby

Suraj

James K

OLIGOPOLY 3

Brooke

Kaitlyn

Katy

MON. COMP. 1

Carson

Leo

Frost

MON. COMP. 2

Finley

Santi

MON. COMP. 3

Timofey

Parker

z

WHAT TO INCLUDE ON YOUR GRADING NOTECARD

▪ YOUR NAME

▪ THE PRESENTER'S NAMES

▪ YES OR NO?

This group’s presentation had sufficient content

▪ YES OR NO?

This group did a good job presenting the material to

us

▪ YES OR NO?

This group’s slide deck was organized, neat, & easy to read

z

WHAT YOU'LL BE GRADED ON

▪ This group’s presentation had sufficient

content

▪ This group did a good job presenting the

material to us

▪ This group’s slide deck was organized, neat,

& easy to read

z

9.2 REVIEW

z 9.2: Monopoly, Oligopoly, & Monopolistic Competition

Vocabulary

▪ Monopoly

▪ Barriers to entry

▪ Economies of scale

▪ Patent

▪ Copyright

▪ Oligopoly

▪ Product differentiation

▪ Cartel


z

Monopoly

Market situation in which a single supplier makes up an entire industry

for a good or service with no close substitutes

▪ In a pure monopoly, the supplier can raise prices without the fear of

losing business

▪ A monopolist cannot charge ridiculously high prices because the law

of demand still applies


z

Monopoly – Barriers to Entry

Obstacles to competition that prevent others from entering a market

Examples:

▪ Cost of getting started (ie automobiles, steel)

▪ State laws that prevent competitors from entering (utilities)


z

Characteristics of a Monopoly

1. Single seller

2. No substitutes

3. Barriers to entry

4. Almost complete control of market


z

Types of Monopolies

1. Natural – government grants exclusive rights to companies (ie utilities, bus

service, etc)

2. Geographic – typically isolated, rural areas with low potential for profit (ie

country store)

3. Technological – if a business invents something (ie Microsoft Windows)

▪ Patent

▪ Copyright

4. Government – similar to natural but monopoly is held by government itself


z

Oligopoly

Industry dominated by a few suppliers who exercise some control over

price

▪ Not considered as harmful to consumers as monopolies

▪ Consumers pay more than if buying in a perfectly competitive market,

but oligopolistic markets tend to have generally stable prices (and

offer great variety of products)


z

Oligopoly - Product Differentiation

Manufacturers' use of minor differences in quality & features to try and

differentiate between similar goods & services

▪ Oligopolists engage in nonprice competition

▪ The price you pay for brand names isn't all about supply & demand...

it has a lot to do with product differentiation


z

Oligopoly - Interdependent Behavior

With so few firms in the industry, whatever one does, the others follow

▪ Price wars are good for consumers until prices drop so low that some

competitors must close business... which leads to less competition

which could cause higher prices in the long run

▪ Collusion takes place when competing oligopolists secretly agree to

raise prices or divide the market (fines & prison terms)


z

Characteristics of an Oligopoly

1. Domination by a few sellers

2. Barriers to entry

3. Identical or slightly different products

4. Nonprice competition

5. Interdependence


z

Monopolistic Competition

Market situation in which a large number of sellers offer similar but

slightly different products in which each has some control over price

▪ The most common form of market structure in the U.S.

▪ Examples: toothpaste, cosmetics, designer clothes


z

Major Difference Between Monopolistic Competition & Oligopoly

➢ Number of sellers of the product


z

Monopolistic Competition – Brand Loyalty

If a company succeeds in building brand loyalty for a product, the

company gains a certain amount of influence over the market (it can

raise the price slightly without losing many customers)

▪ Competitive advertising is important


z

Characteristics of Monopolistic Competition

1. Numerous sellers

2. Relatively easy entry

3. Differentiated products

4. Nonprice competition

5. Some control over price


z

>> FRIDAY, NOVEMBER 1ST <<

Entry Task:

Take out your notes from yesterday's group

presentations and be ready to answer review

questions!

z




Competition


z 9.3: Government Policies Toward Competition

Vocabulary

▪ Interlocking directorate

▪ Antitrust legislation

▪ Merger

▪ Conglomerate

▪ Deregulation

z

Antitrust Legislation & Mergers

Main Idea / Learning Objective: Explain the goal of antitrust legislation:

to encourage competition in the economy and to prevent unfair trade

practices.

9.3: Government Policies Toward Competition

z

Rockefeller & Standard Oil Company

▪ Notorious for driving competitors out of business & pressuring

customers not to deal with rival oil companies

▪ Rockefeller perfected interlocking directorate – a board of directors,

the majority of whose members also serve on the board of directors of

a competing corporation


z

Sherman Antitrust Act of 1890

Public pressure against Rockefeller's monopoly led Congress to pass

this law, which sought to protect trade & commerce against unlawful

restraint & monopoly

➢ Antitrust legislation – federal and state laws passed to prevent new

monopolies from forming and to break up those that already exist


z

Clayton Act

Because the Sherman Act was so vague, this law was passed in 1914 to

sharpen its antitrust provisions.

➢ It prohibited or limited a number of very specific businesses practices

that lessened competition substantially

➢ Substantially? Federal courts & agencies make a subjective decision as

to whether the merging of two corporations would substantially lessen

competition


z

Merger

The legal combination of two or more companies that become one

corporation

1. Horizontal

2. Vertical

3. Conglomerate


z

Types of Mergers

1. Horizontal – involve businesses that make the same product or provide the same service

➢ Shannon's Home & Garden buys Lee's Nursery

2. Vertical – take place when firms taking part in different steps of manufacturing come together

➢ Gas stations, oil refineries, & oil wells merge

3. Conglomerate – a firm that has many businesses, each providing unrelated products or services

➢ Proctor & Gable: Charmin, Bounty, Crest


z

Government Regulation

Main Idea / Learning Objective: Describe the aim of government

agencies – to promote efficiency, competition, fairness, and safety.


z

Besides antitrust laws to foster a competitive atmosphere, the

government uses direct regulation of business pricing and product

quality.

➢ Although the aim of government regulations is to promote efficiency &

competition, recent evidence indicates that something quite different

has occurred...


z

...deregulation occurred

Reduction of government regulation and control of business activity

➢ It was found that, in protecting consumers from unfair practices,

government regulations had actually decreased the amount of

competition in the economy.

➢ Example: For years, the FCC regulated basic channels. With

deregulation came the entry of competitive pay-TV, cable, satellite

systems, streaming, etc.


z

What would happen if the government removed its watchdog responsibility toward mergers in general? Many economists assume prices would rise.

➢ If, however, the price increases caused profits to be excessive, other sellers would find ways to enter the market

➢ Consumers would eventually benefit from a competitive supply of goods & services

➢ With increased global competition, domestic firms cannot raise prices without attracting foreign rivals

➢ Global competition is a huge threat to American companies

➢ Internet & fast shipping also brings in the competition


z

CHAPTER 9 REVIEW

9.1 vocab

• Market structure

• Perfect competition

9.1 concepts

• 5 conditions of perfect

competition

• Agriculture as an

example of perfect competition

QUIZ MONDAY!!!!!!!!

9.2 vocab

• Monopoly

• Barriers to entry

• Economies of scale

• Patent• Copyright

• Oligopoly

• Product differentiation

• Cartel

• Monopolistic competition

9.2 concepts

• Characteristics of:

monopolies, oligopolies,

& monopolistic competition

• 4 types of monopolies

9.3 vocab

• Interlocking directorate

• Antitrust legislation

• Merger

• Conglomerate• Deregulation

9.3 concepts

• Sherman Antitrust Act• Clayton Act

• Horizontal, vertical, &

conglomerate mergers

z Overview of Next Week

▪ Monday: Chapter 9 Quiz

▪ Tuesday: Study Time for Unit 2 Test (Kahoot!)

➢ Turn in Ch 7, 8, & 9 Guided Reading packet!

▪ Wednesday: No class!

▪ Thursday: Unit 2 Test

▪ Friday: DECA multiple-choice test practice

>> monday, october 7

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