(2) Chapter 3 - Perfect Competition, Imperfectly Competitive Markets and Monopoly

Question 1

What are ARTIFICIAL BARRIERS?

Answer 1

Barriers created by firms, such as high levels of advertising expenditure or predatory pricing

Question 2

What is PRODUCT DIFFERENTIATION?

Answer 2

Marketing products with minor variations making them seem superior to others

Question 3

What is the PROFIT MAXIMISATION RULE?

Answer 3

MR = MC

Question 4

What is SATISFICING?

Answer 4

Achieving satisfactory outcome rather than the best possible outcome

Question 5

Define STATIC EFFICIENCY

Answer 5

Efficiency at a particular point in time

Question 6

Define DYNAMIC EFFICIENCY

Answer 6

Improvements in other types of efficiency that lead to improve productive efficiency

Question 7

Define CARTEL

Answer 7

A collusion agreement by firms, usually to fix prices to deter the entry of new firms

Question 8

Define PRICE LEADERSHIP

Answer 8

The setting of prices in a market, usually by a dominant firm

Question 9

Define PRICE AGREEMENT

Answer 9

An agreement between a group regarding the pricing of a good/service

Question 10

Define PRICE WAR

Answer 10

When rival firms continuously lower prices to undercut each other

Question 11

Define PRICE DISCRIMINATION

Answer 11

Charging different prices to different customers for the same good/service based on willingness to pay

Question 12

Define CONSUMER SURPLUS

Answer 12

The surplus utility received over and above the price paid for a good

Question 13

Define PRODUCER SURPLUS

Answer 13

The difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept

Question 14

Define CONTESTABLE MARKET

Answer 14

A market in which the potential exists for new firms to enter the market

Question 15

What are the characteristics of a PERFECT CONTESTABLE MARKET

Answer 15

No entry or exit barriers, no sunk costs and entrants have access to the same level of technology

Question 16

What is HIT-AND-RUN competition

Answer 16

When a new entrant can ‘hit’ the market, make profits and then ‘run’, given that there is are no or low barriers to exit

Question 17

Define DEADWEIGHT LOSS

Answer 17

The loss of economic welfare when the maximum attainable level of total welfare is not achieved

Question 18

What are the conditions for successful PRICE DISCRIMINATION

Answer 18

• Must have setting power
• Must be able to identify two or more distinct consumer groups
• Must be able to prevent seepage