Chapter 5: Perfect Competition Flashcards

1
Q

A market structure determines the

A

Competition
Or
Power

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2
Q

What are the characteristics to examine for market structures?

A

Number of firms in the market
Relative size of firm in market
The type of products
Extent of free entry and exit of firms

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3
Q

What are the market structures?

A

Perfect competition
Monopolistic competition
Oligopoly
Monopoly

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4
Q

What are the characteristics of perfect competition?

A
Large no. of firms and customers 
Small share of the market
Each firm sells homogenous goods
Perfect information in the market
Free entry and exit of firms from industry in long run
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5
Q

When each firm only has a small share of the market? What is the implication?

A

Firms become price takers

Buyers and firms do not have influence over price

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6
Q

What does it mean when firms sell homogenous goods?

A

They are identical, and perfect substitutes for each other

Do not care which firm they buy from

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7
Q

When there is perfect information in the market?

A

Producers are aware of prices, costs and market opportunities

Consumers are aware of price, quality and availability of product

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8
Q

Since consumers are aware of prices,

A

The demand curve is perfectly elastic

It is horizontal

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9
Q

What is closest to a perfect competition market structure?

A

Stock exchange

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10
Q

What is the price set by in perfect competition?

A

Market equilibrium price

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11
Q

What are the unrealistic market structures?

A

Perfect competition

Monopoly

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