4 competitive and concentrated markets Flashcards
market structure definition
the organisation of a market in terms of the number of firms in the market and the ways in which they behave
price taker definition
a firm which passively accepts the equilibrium price set by the market conditions outside of its control
price maker definition
a firm possessing the power to set the price within the market
perfect competition definition
a market that displays the 6 conditions
competitive market definition
a market in which firms strive to outdo their rivals, but doesn’t meet all the conditions of perfect competition
concentrated market definition
a market containing very few firms, in the extreme only one firm
pure monopoly definition
when there is only one fir in the market
monopoly power definition
the power of a firm to act as price maker rather than as a price taker
imperfect competition definition
any market structure lying between the extremes of perfect competition and pure monopoly
entry barrier definition
makes it difficult or impossible for new firms to enter a market
exit barrier definition
makes it difficult or impossible for firms to leave the market
consumer sovereignty definition
consumers decide what is produced within a market by what they spend their money on
-consumer is king
- strongest in a perfectly competitive market
producer sovereignty definition
produces decide what is produced and what prices are charged in a market
natural monopoly definition
two meanings:
- when there is only room in a market for 1 firm benefiting from all the economies of scale
- when a country has complete control of a natural resource
patent definition
man-made barrier of entry, protecting the right of a product (idea or how it is built, design)
natural barrier to entry definition
a barrier to market entry which is not man-made
artificial barrier to entry definition
a barrier to market entry which is man-made
oligopoly definition
a market dominated by a few firms
(top 5 more than 60% of the market share)
resource misallocation definition
when resources are allocated in a way which doesn’t not maximise economic welfare
price competition definition
reducing the price of a good or service to gain sales by making it more attractive for consumers
(works in elastic goods markets)
limit pricing definition
reducing the price of a good to just above the average cost o deter the entry of new firms into the market
- makes it unprofitable for newly entered firms
predatory pricing definition
temporarily reducing the price of a good to below average cost to drive away smaller firms from the market
what are the 6 parts to form perfect competition
- large number of buyers and sellers
- perfect market information
- ability to buy or sell as much as they wish at equilibrium price
- inability for a buyer or seller to influence the price
- identical products being sold
- no barriers to enter/exit in the long run
