4 competitive and concentrated markets

Question 1

market structure definition

Answer 1

the organisation of a market in terms of the number of firms in the market and the ways in which they behave

Question 2

price taker definition

Answer 2

a firm which passively accepts the equilibrium price set by the market conditions outside of its control

Question 3

price maker definition

Answer 3

a firm possessing the power to set the price within the market

Question 4

perfect competition definition

Answer 4

a market that displays the 6 conditions

Question 5

competitive market definition

Answer 5

a market in which firms strive to outdo their rivals, but doesn’t meet all the conditions of perfect competition

Question 6

concentrated market definition

Answer 6

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

Question 7

pure monopoly definition

Answer 7

when there is only one fir in the market

Question 8

monopoly power definition

Answer 8

the power of a firm to act as price maker rather than as a price taker

Question 9

imperfect competition definition

Answer 9

any market structure lying between the extremes of perfect competition and pure monopoly

Question 10

entry barrier definition

Answer 10

makes it difficult or impossible for new firms to enter a market

Question 11

exit barrier definition

Answer 11

makes it difficult or impossible for firms to leave the market

Question 12

consumer sovereignty definition

Answer 12

consumers decide what is produced within a market by what they spend their money on

-consumer is king
- strongest in a perfectly competitive market

Question 13

producer sovereignty definition

Answer 13

produces decide what is produced and what prices are charged in a market

Question 14

natural monopoly definition

Answer 14

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

Question 15

patent definition

Answer 15

man-made barrier of entry, protecting the right of a product (idea or how it is built, design)

Question 16

natural barrier to entry definition

Answer 16

a barrier to market entry which is not man-made

Question 17

artificial barrier to entry definition

Answer 17

a barrier to market entry which is man-made

Question 18

oligopoly definition

Answer 18

a market dominated by a few firms
(top 5 more than 60% of the market share)

Question 19

resource misallocation definition

Answer 19

when resources are allocated in a way which doesn’t not maximise economic welfare

Question 20

price competition definition

Answer 20

reducing the price of a good or service to gain sales by making it more attractive for consumers
(works in elastic goods markets)

Question 21

limit pricing definition

Answer 21

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

Question 22

predatory pricing definition

Answer 22

temporarily reducing the price of a good to below average cost to drive away smaller firms from the market

Question 23

what are the 6 parts to form perfect competition

Answer 23

• 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