Chapter 14: Market structure: monopoly

Question 1

Define monopoly

Answer 1

A form of market structure in which there is only one seller of a good or service

Question 2

Define price maker

Answer 2

A firm that is able to choose the selling price for its good or service as it faces a downwards-sloping demand curve

Question 3

Define dynamic efficiency

Answer 3

A view of efficiency that takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long-run

Question 4

Define natural monopoly

Answer 4

A monopoly that arises in an industry in which there is substantial economies of scale that only one firm is viable

Question 5

Define nationalisation

Answer 5

Where a privately owned firm or industry is taken into public ownership

Question 6

Define privatisation

Answer 6

Where an enterprise in public ownership is returned to private ownership

Question 7

Define regulatory capture

Answer 7

A situation in which the regulator of an industry comes to represent the industry’s interests rather than regulating it

Question 8

Define perfect/first-degree price discrimination

Answer 8

A situation arising in a market whereby a monopoly firm is able to charge each consumer a different price

Question 9

Define third-degree price discrimination

Answer 9

A situation in which a firm is able to charge groups of consumers a different price for the same product

Question 10

Define arbitrage

Answer 10

A process by which prices in two market segments will be equalised by a process of purchase and resale by market participants