Competition and market structures (ME 8.5)

Question 1

primary aim/goal of businesses

Answer 1

maximize profit: can motivate companies to eliminate competition, increase prices and lower quality of products.

Question 2

what is a market?

Answer 2

any structure that allows buyers and sellers to exchange any type of goods, services and inoformation

Question 3

transaction

Answer 3

exchange of goods and services with or without money

Question 4

what is a competition?

Answer 4

1. striving against others to reach an objective

Question 5

4 types of competition (just list, no need definition of each)

Answer 5

Perfect competition:
pure competition

Imperfect Competition:
Monopolistic Competition
Oligopoly
Monopoly

Question 6

why does the government attempt to maintain competition?

Answer 6

ensure low prices and high quality of products

Question 7

what laws are in place to ensure fair competition in a market?

Answer 7

Antitrust laws are in place to stop monopoly power from disrupting fair competition in a market

Question 8

number of firms/ firms’ influence of price levels for the 4 types of competition

Answer 8

Perfect competition:
- large number of firms
- low influence of price levels from each firm

monopolistic competition:
- medium to high number of firms
- medium to low influence of price levels

oligopoly:
- medium to low number of firms
- medium to high amount of firm’s influence of price levels

monopoly:
- low number of firms
- high amount of firm’s influence of price levels

Question 9

Describe pure/ perfect competition

Answer 9

• Doesn’t really exist (theoretical)
• Large number of buyers and sellers
• Identical product
• Well informed buyers and sellers
• causing more competition

Question 10

Products slightly different=

Answer 10

imperfect competition

Question 11

Describe monopolistic competition

Answer 11

• well informed buyers and sellers
• slightly different products
• e.g. whopper, big mac
• use non-price competition, e.g. advertising, giveaways, other promotions

Question 12

Describe oligopoly.

Answer 12

• a few very large sellers dominate the industry
• collusion occurs (secret agreement or cooperation)
• sometimes engage in price wars: businesses compete against each other by repeatedly lowering their prices in an attempt to gain market share and drive out competitors
• medium level of competition
• e.g. coca cola company, nestle, general motors

Question 13

Describe a monopoly.

Answer 13

• only one seller of a particular product
• very few monopolies
• many regulations limit them. are illegal
• one seller dominates with at least 75%
• very little/ no competition

Question 14

Different types of monopolies.

Answer 14

• natural monopoly
• government monopoly
• technological monopoly
• antitrust exemption monopoly
• geographic monopoly

Question 15

briefly explain what results in a natural monopoly.

Answer 15

exists as a result of the high startup costs for infrastructure or materials. They appear in industries that require unique raw materials, technology or equipment. The market cant handle competition in this product and it is inefficient to have failure.

Question 16

briefly explain what is a government monopoly

Answer 16

a government agency is the sole provider of a particular good or service and competition is sometimes prohibited by law.

Question 17

briefly explain what results in a technological monopoly

Answer 17

occurs when one company controls manufacturing methods or has rights/patents to exclusively produce it.

Question 18

Briefly describe what is an Antitrust Exemption Monopoly-

Answer 18

Companies that are considered sporting events or exhibitions, or are not a form of commerce, thus do not need to be limited.

Question 19

Briefly explain what is a geographic monopoly.

Answer 19

A condition that exists in a local area or region where one company is the sole provider of a good or service in an isolated area.