(1) Chapter 4 - Competitive and Concentrated Markets

Question 1

Define MARKET STRUCTURE

Answer 1

The organisation of a market in terms of the number of firms and how they behave

Question 2

Define a PRICE TAKER

Answer 2

A firm that passively takes the market selling price for their goods, as they do not have enough power to change it

Question 3

Define a PRICE MAKER

Answer 3

A firm possessing enough power to change/set the price of a good

Question 4

What are the 6 conditions needed for a PERFECT COMPETITION market?

Answer 4

• 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

Question 5

Define a COMPETITVE MARKET

Answer 5

Where firms try to outdo each other

Question 6

Define a CONCENTRATED MARKET

Answer 6

A market containing very few firms, in the extreme only one firm

Question 7

Define PURE MONOPOLY

Answer 7

Where there is only one firm in the market

Question 8

Define MONOPOLY POWER

Answer 8

The power of a firm to be a price maker instead of being a price taker

Question 9

What is an ENTRY BARRIER?

Answer 9

What makes it hard/impossible for firms to enter a market

Question 10

What is an EXIT BARRIER?

Answer 10

What makes it hard/impossible for firms to leave a market

Question 11

What is CONSUMER SOVEREIGNTY?

Answer 11

Where consumers collectively determine what is produced in a market through their spending power

Question 12

What is PRODUCER SOVEREIGNTY?

Answer 12

Producers/Firms determine what is produced and what prices are charged

Question 13

What is NATURAL MONOPOLY?

2 meanings

Answer 13

1. When a firm has complete control over a natural resource

2. One firm is benefiting from economies of scale to the full

Question 14

Define PATENT

Answer 14

A man-made barrier to market entry (by government) to protect a single firm to have pure monopoly

Question 15

What are the two main types of entry barriers?

Answer 15

Natural and artificial

Question 16

Define INFORMATIVE ADVERTISING

Answer 16

Providing consumers/producers with useful information about goods/services

Question 17

Define PERSUASIVE ADVERTISING

Answer 17

Attempts to persuade customers that a good/services is better than others

Question 18

Define SATURATION ADVERTISING

Answer 18

Flooding the market with advertisement which makes it hard for upcoming firms to enter the market

Question 19

Define PRODUCT DIFFERENTIATION

Answer 19

Making a product different from other products

Question 20

What is the CONCENTRATION RATIO?

Answer 20

The total market share of the number of leading firms

Question 21

Define OLIGOPOLY

Answer 21

A market dominated by a few firms

Question 22

What is RESOURCE MISALLOCATION?

Answer 22

When resources are not allocated in the best way to maximize economic welfare

Question 23

Define COLLUSION and why is it bad?

Answer 23

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

Question 24

Define INVENTION

Answer 24

Creating new ideas for a new market

Question 25

Define INNOVATION

Answer 25

Improving/adapting inventions

Question 26

What is PRICE COMPETITION

Answer 26

Reducing the price of a good to attract more customers

Question 27

What are the two types of PRICE COMPETITION?

Answer 27

• Limit pricing

- Predatory pricing