CHAPTER 8

Question 1

Monopoly

Answer 1

One seller of product or service no close substitutes available

Price maker

1 seller

Barriers of entry high

Demand inelastic

Demand curve downward sloping

Question 2

Market power

Answer 2

Business’s ability to set prices

Question 3

Price maker

Answer 3

Pure monopoly with maximum power to set prices

Question 4

Higher prices

Answer 4

Increase total revenue as long as demand is inelastic

Question 5

Price taker

Answer 5

Business with zero power to set price

Question 6

Perfect competition

Answer 6

When there is prices taking

Many sellers producing identical products

Many substitutes

Barriers of entry nonexistent

Demand is elastic

Question 7

Perfect elastic demand in perfect conception

Answer 7

Vertical line on graph

Question 8

Market structure factors that affect businesses’ power to price

Answer 8

Characteristics that affect competition and pricing power — availability of substitutes, number of competitors, barriers to entry of new competitors

Question 9

Broad market

Answer 9

More substitutes and competitors

Question 10

Narrow market

Answer 10

Fewer substitutes and competitors

Question 11

Product differentiation

Answer 11

Attempt to distinguish product from competitors

Question 12

Fewer competitors

Answer 12

More pricing power

Question 13

More competitors

Answer 13

Less pricing power

Question 14

Barriers to entry

Answer 14

Legal or economic barriers preventing new competitors from entering a market

Question 15

Patents and copyrights

Answer 15

Exclusive property rights to sell or license creations, protecting against competition

A legal barrier to entry

Question 16

Average total cost

Answer 16

Total cost per unit of output

Question 17

When does total average cost decrease

Answer 17

When businesses produce larger quantities of output — economies of scale

Question 18

Highest pricing power

Answer 18

Businesses with Inelastic demand

Question 19

Lower pricing power

Answer 19

Businesses with elastic demand

Question 20

Where do most market exist

Answer 20

In between monopoly and perfect competition

Question 21

Oligopoly

Answer 21

Few big sellers control most of the market

Price maker much pricing power

Differentiated substitutes

Barriers to entry medium

Demand inelastic

Question 22

Monopolistic competition

Answer 22

Many small businesses make similar but slightly differentiated products

Price maker — limited pricing power

Differentiated substitutes

Barriers to entry nonexistent

Demand elastic

Question 23

Competition

Answer 23

Active attempt to increase profits and gain the market power of monopoly

Question 24

Competitive weapon and gaining market power

Answer 24

Cutting costs — new tech , reduce waste, lower cost raw materials

Improving quality and product innovation

Advertising create brand loyalty can make demand inelastic

Eliminate competition by merging with competitors to reduce substitutes and gain economies of scale

Building barriers to entry

Question 25

Creative destruction

Answer 25

Competitive business innovations generate economic profits for winners, improve living standards for all, but destroy less productive or less desirable products and production methods

Responsible for the movement of jobs offshore

Schumperer’s theory

Question 26

When people pay more for insurance than what it’s worth is

Answer 26

Risk averse