(1) Chapter 4 - Competitive and Concentrated Markets Flashcards
Define MARKET STRUCTURE
The organisation of a market in terms of the number of firms and how they behave
Define a PRICE TAKER
A firm that passively takes the market selling price for their goods, as they do not have enough power to change it
Define a PRICE MAKER
A firm possessing enough power to change/set the price of a good
What are the 6 conditions needed for a PERFECT COMPETITION market?
- Large number of buyers and sellers
- Each buyer and seller possesses information about the market
- Buyers and sellers are able to buy/sell as much as they want
- A single buyer/seller cannot influence the change of price
- All goods are homogenous
- Barriers of entry
Define a COMPETITVE MARKET
Where firms try to outdo each other
Define a CONCENTRATED MARKET
A market containing very few firms, in the extreme only one firm
Define PURE MONOPOLY
Where there is only one firm in the market
Define MONOPOLY POWER
The power of a firm to be a price maker instead of being a price taker
What is an ENTRY BARRIER?
What makes it hard/impossible for firms to enter a market
What is an EXIT BARRIER?
What makes it hard/impossible for firms to leave a market
What is CONSUMER SOVEREIGNTY?
Where consumers collectively determine what is produced in a market through their spending power
What is PRODUCER SOVEREIGNTY?
Producers/Firms determine what is produced and what prices are charged
What is NATURAL MONOPOLY?
2 meanings
- When a firm has complete control over a natural resource
2. One firm is benefiting from economies of scale to the full
Define PATENT
A man-made barrier to market entry (by government) to protect a single firm to have pure monopoly
What are the two main types of entry barriers?
Natural and artificial
Define INFORMATIVE ADVERTISING
Providing consumers/producers with useful information about goods/services
Define PERSUASIVE ADVERTISING
Attempts to persuade customers that a good/services is better than others
Define SATURATION ADVERTISING
Flooding the market with advertisement which makes it hard for upcoming firms to enter the market
Define PRODUCT DIFFERENTIATION
Making a product different from other products
What is the CONCENTRATION RATIO?
The total market share of the number of leading firms
Define OLIGOPOLY
A market dominated by a few firms
What is RESOURCE MISALLOCATION?
When resources are not allocated in the best way to maximize economic welfare
Define COLLUSION and why is it bad?
Co-operation between firms, this is bad because they can do things like fix prices to make it much higher than it should be and people are forced to buy it
Define INVENTION
Creating new ideas for a new market
