Chapter 7: Market Structures

Question 0

What are the four conditions for perfect competition?

Answer 0

1. Many buyers and sellers participate in the market
2. Sellers offer identical products
3. Buyers and sellers are well informed about products
4. Sellers are able to enter and exit the market freely

Question 1

perfect competition

Answer 1

a market structure in which a large number of firms all produce the same product

Question 2

commodity

Answer 2

a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk

Question 3

barrier to entry

Answer 3

any factor that makes it difficult for a new firm to enter a market

Question 4

imperfect competition

Answer 4

a market structure that does not meet the conditions of perfect competition

Question 5

start-up costs

Answer 5

the expenses a firm must pay before it can begin to produce and sell goods

Question 6

monopoly

Answer 6

a market dominated by a single seller

Question 7

economies of sale

Answer 7

factors that cause a producer’s average cost per unit to fall as output rises

Question 8

natural monopoly

Answer 8

a market that runs most efficiently when one large firm supplies all of the output

Question 9

government monopoly

Answer 9

a monopoly created by the government

Question 10

patent

Answer 10

a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time

Question 11

franchise

Answer 11

the right to sell a good or service within an exclusive market

Question 12

license

Answer 12

a government issued right to operate a business

Question 13

price discrimination

Answer 13

division of customers based on how much they will pay for a good

Question 14

market power

Answer 14

the ability of a company to change prices and output like a monopolist

Question 16

What are some examples of targeted discounts/price discrimination?

Answer 16

discounted airline fares, manufacturers’ rebate offers, senior citizen or student discounts, children fly or stay free promotions

Question 17

What three conditions does a market need to meet for price discrimination to work?

Answer 17

1. Some market power
2. Distinct customer groups
3. Difficult resale

Question 18

monopolistic competition

Answer 18

a market structure in which many companies sell products that are similar but not identical

Question 19

What are the four conditions of monopolistic competition?

Answer 19

1. Many firms
2. Few artificial barriers to entry
3. Slight control over price
4. Differentiated products

Question 20

differentiation

Answer 20

making a product different from other similar products

Question 21

nonprice competition

Answer 21

a way to attract customers through style, service, or location, but not a lower price

Question 22

What are some examples of nonprice competition?

Answer 22

1. Physical characteristics
2. Location
3. Service level
4. Advertising, image, or status

Question 23

oligopoly

Answer 23

a market structure in which a few large firms dominate a market

Question 24

price war

Answer 24

a series of competitive price cuts that lowers the market price below the cost of production

Question 25

collusion

Answer 25

an agreement among firms to charge one price for the same good

Question 26

price fixing

Answer 26

an agreement among firms to charge one price for the same good

Question 27

cartel

Answer 27

a formal organization of producers that agree to coordinate prices and production

Question 28

predatory pricing

Answer 28

selling a product below cost to drive competitors out of the market

Question 29

antitrust laws

Answer 29

laws that encourage competition in the marketplace

Question 30

trust

Answer 30

like a cartel, an illegal grouping on companies that discourages competition

Question 31

merger

Answer 31

combination of two or more companies into a single firm

Question 32

deregulation

Answer 32

the removal of some government controls over a market