Chapter 11

Question 0

Consumer sovereignty

Answer 0

When the customer has control. The buying decisions of the consumer dictate what is produced in the market. While businesses can produce and try to sell whatever they want, consumers actually decide whether to buy it or not. If the consumers do not buy, the businesses cannot sell and in time, production will be discontinued. Loss making businesses close down.

Question 1

Market power

Answer 1

The ability of a producer to exert some level of control over a market ; this may include setting prices, restricting output, influencing other producers, creating barriers to entry and influencing suppliers. Where businesses can increase their market share they can usually also increase their market power.

Question 2

The public interest

Answer 2

A loose term that means the welfare or wellbeing of the public in general, as apprised to selfish individuals, groups and businesses. In the context, it means the interest of consumers and society in general rather than the interests of businesses.

Question 3

A cartel

Answer 3

Any agreement between a number of businesses to reduce competition or to avoid competing with each other. The agreement is usually secret and may involve various strategies. (Prices, output levels, market sharing)

Question 4

Tacit collusion

Answer 4

When competing firms appear to follow a similar strategy to reach the same aim, such as avoiding price cutting, but without actually meeting or having an agreement as such.

Question 5

Explicit collusion

Answer 5

When there is a meeting or actual agreement to follow a joint strategy.

Question 6

Restrictive practices

Answer 6

Include any action that a business might use to limit competition.

Question 7

A natural monopoly

Answer 7

Occurs when the most efficient scale of production is a monopoly because more than one producer or supplier would involve wasteful duplication of resources.

Question 8

Regulatory body

Answer 8

A public authority or government agency responsible for exercising autonomous control over a sphere of business activity. Examples include OFGEM, the office of the gas and electricity markets of OFCOM, the communications regulator that regulates the tv and radio sectors, fixed line telecoms, mobiles, postal services, plus the airwaves over which wireless devices operate. Protecting consumers is their main priority.