11.1 Imperfect Competition Flashcards
What is an imperfectly competitive market structure?
In developed economies such as Canada, the United States, France, Germany, and Australia, most firms fall somewhere between the two ends of the spectrum of market structures—they are neither perfectly competitive nor monopolistic. We refer to the market structures between these two extremes as imperfectly competitive.
What are two common types of industries that lay in between the two extreme market structures?
Between the two extreme market structures of perfect competition and monopoly are two common types of industries—those with many small firms and those with a few large firms.
What kind of industry is the majority of Canadian output produced from?
The majority of Canada’s output each year is produced in industries where the firms are small relative to the size of their industry.
What kind of economic behavior does the theory of monopolistic competition help to explain?
The theory of monopolistic competition was originally developed to help explain economic behavior and outcomes in industries in which there are many small firms, but where each firm has some degree of market power.
What percent of Canada’s total output is produced by industries either a single firm or a few large ones?
About one-third of Canada’s total output is produced in industries dominated by either a single firm or a few large ones.
What kind of industry does the theory of oligopoly explain?
The theory of oligopoly helps us to understand these industries in which there are a small number of large firms, each with considerable market power, and that compete actively with each other.
An industry with a small number of relatively large firms is said to be…
An industry with a small number of relatively large firms is said to be highly concentrated.
What is a concentration ratio?
The fraction of total market sales is controlled by a specified number of the industry’s largest firms.
(In reference to imperfect competition. )Let’s begin by noting a number of characteristics that are typical of imperfectly competitive firms. To help organize our thoughts, we classify these under three main headings.
First, firms differentiate their products.
Second, firms set their prices.
Third, firms engage in non-price competition.
What is an example of a differentiated product.
These breakfast cereals are different enough that each can have its own price, but they are similar enough to be called the same product—they are a differentiated products.
What is a differentiated product
A group of products is similar enough to be called the same product but dissimilar enough that they can be sold at different prices.
What kind of products do most firms in an imperfectly competitive market sell?
Most firms in imperfectly competitive markets sell differentiated products. In such industries, the firm itself must choose its product’s characteristics.
What is a price setter?
A firm that faces a downward-sloping demand curve for its product. It chooses which price to set.
How do most firms in imperfect competition determine price and sales?
In imperfect competition, most firms set their prices and then let demand determine sales. Changes in market conditions are signaled to the firm by changes in the firm’s sales.
One striking contrast between perfectly competitive markets and markets for differentiated products concerns the behavior of prices…
In perfect competition, prices change continually in response to changes in demand and supply. In markets where differentiated products are sold, prices change less frequently.
