economics midterm 2

Question 1

what is a pure competition?

Answer 1

a marketing situation where many sellers offer similar products

Question 2

what are some characteristics of a pure competition?

Answer 2

-many buyers and sellers
- producers offer identical products
- free entry and exit to the market
- all producers have access to the same information

Question 3

barriers to enter a pure competition

Answer 3

• challenging for smaller firms to enter as it maybe be hard to keep up with the competition
• difficult as some brands have a reputation and loyalty.
• hard for smaller firms as there may be licensing requirements and initial capital investment

Question 4

what is monopoly?

Answer 4

a market structure where a single seller/ producer dominates the entire supply of a certain good (no close substitutes)

Question 5

key characteristics of monopoly?

Answer 5

• one seller
• unique product
• high barriers to entry
• that one seller has control over the price of the product

Question 6

advantages of monopoly?

Answer 6

• benefit from economies scale like cost savings
• has the financial capacity the invest in research and development
• since there is only one seller there are stable prices
• are more likely to be long term investments in infrastructure

Question 7

disadvantages of monopoly?

Answer 7

• high prices for consumers
• since there is only one seller consumers are very limited
• lack of innovation
• have high barriers to entry making it difficult for new firms to enter (may limit the potential for new ideas)

Question 8

what is oligopoly?

Answer 8

a market structure made of a small amount of large firms that dominate an industry

Question 9

characteristics of oligopoly

Answer 9

• few large firms
• interdependent as each firms has to think of the others
• high barriers to entry like startup costs, economies of scale and brand loyalty
• firms may distinguish their products from their competitors

Question 10

what are 3 government regulations for businesses?

Answer 10

1- compliance requirements: businesses must comply with ethical and legal standards
2- industry specific regulations: businesses face specific regulations to maintain safety, quality and fair prices
3- market entry barriers: when regulations make it difficult for small firms to enter the market therefore limiting competition

Question 11

what are 3 things competition has an effect on?

Answer 11

1- market structure: competitive forces shape market structures and level of competition influences pricing, innovation and consumer choice
2- innovation and research and development: competition drives businesses to invest in r & d to stay ahead
3- consumer choice: competition offers consumers a variety of choices leading to better quality products

Question 12

connection between government regulations and competition?

Answer 12

1- balancing act: governments must find balance between regulations and competition
2- consumer production: regulations protect consumers and ensures fair business
3- policy changes: changes in policy or regulations can impact competitive landscape and influences business strategies