Lesson 8 Flashcards
The envoronment can have different market conditions which can affect firms in different ways. Through the years, economists have identified characteristics of firms and categorized them into mainly 4 structures:
- Perfect Competition
- Monopolistic Completion
- Oligopoly
- Monopoly
Many firms sell the same goods or service.
Perfect Competition
Perfect competition, as economists wistfully point out, is an _____ of affairs, whicih unfortunately, does not exist in any industry
ideal state
______ attains the ideal of always being right.
Perfect Competition
Perfect Competition will be considered an ______ by which the other forms of competition-monompoly, monopolistic competition, and oligopoly- will be judged.
unattainable standard
Is a market structure ith many well-informed sellers and buyers of an identical products and no barriers to entering or leaving the market.
Perfect Competition
Perfect competition is a market structure composed of 3 characteristics
- Large number of small firms
- Homogeneous or identical product
- Very easy entry and exit
Under _____, the exact numbeer cannot be determined
Perfect Competition
One of the characteristics of a perfectly competitive market is its composition of many firms and buyers, which means there is a large number of independently-acting firms and buyers, both of which are being suffeciently small to be unable to influence the price od product ttransacted in the market.
Large number of small firms
Each firm or producer acts independently rather than coordinating decisions collectively.
Large number of small firms
In a perfectly competitive market, the products offered by the competing firms are ___ not inly in physical attributes but are also refarded as identical by buyers who have no preference between the products of various producers.
Homogeneous or identical product
All firms produce a standarized or ___ products.
homogeneous
Those who buy the products cannot distinguish what one seller offers from what another seller offers.
Homogeneous or identical product
This means that there are no barriers to entry of new sellers or impediments to the exit of existing sellers.
Very easy entry and exit
New firms do not have barrirs to entri while existing firms can readily leave the market without difficulty.
Veyr easy entry and exit
In the real world, however, no market exactly fits the 3 assumptions of perfect competition. TRUE OR FALSE
TRUE
The perfectly competitive market structure is only a ______ but some actual markets do approximate the model fairly closely.
theoretical or ideal model
Typical example of perfect competition is the ___
Agriculture sector
The perfect competitior faces a _____, or ____, demand curve.
horizontal or perfectly elastic
The _____ is the point at which supply and demand curves cross
market price
As a perfect competitor, you are a price _____, not a price _____.
taker
maker
. The ____ is where market demand is equal to market supply.
market price
_____ is very good for consumers because they can buy at cost.
Perfect competition
When the economy is perfectly competitive, the act of competing means that not everyone can have everything he desires, as one loses out to the competition.
Pareto optimality and efficiency
The concept of________ comes to play to settle this inefficiency
Pareto optimality
Named after ______ , an Italian economist who specialized in resource and income allocation, the concept states that an economy optimal or efficient when no further changes in the economy can make one individual better off without making someone else worse off
Vilfredo Pareto
________ is an allocative efficiency which occurs when the value that consumers place on goods or service equals the cost of the factor resourced utilized in the production.
Pareto optimality
Different sets of resource allocation exist so when a change in the initial allocation that makes one individual better off while not making another worse off. This is called a __________.
Pareto improvement
Monopolistic competition is a type of market structure characterized by 3
- Many small firms
- differentiated products
- easy market entry and exit
________ is formed by high number of firms producing similar goods that can be seen as unique due to differentiation, this market structure allow prices to go higher than marginal costs.
monopolistic competition
This means that each producer will be considered as a ________ but the whole market is considered competitive because the degree of differentiation still considers the possibility of having substitution effect.
monopoly
Monopolistically competitive market is comprised of a large number of independently-acting firms and buyers
many small sellers
_______ is the process of creating real or apparent differences between goods and services sold in the market
Product differentiation
The products offered by competing firms under a monopolistically competitive market are differentiated from each other in one or more respects. In fact, this is the key feature of monopolistic competition.
Differentiated product
A ________ has close, but not perfect, substitutes.
differentiated product
The importance of this viewpoint, therefore, is that consumers are willing to pay a slightly high price for Don Pedro’s seafood.
Product differentiation
_________, rivalry centers on non- price factors in addition to price competition.
monopolistic competition
_________, a firm in this type of market structure competes using marketing strategies like advertising, packaging, product development and innovation, better quality, and better service rather than simply lowering price.
non-price competition
___________ is an important characteristic of monopolistic competition that distinguishes it from perfect competition and monopoly.
Non-price
The most common form of non-price competition is _______.
advertising
In a _________, there are no barriers to entry preventing new firms entering the market or obstacles in the way of existing firms leaving the market.
monopolistically competitive market
unlike a _____, firms in a ________ face low barriers to entry.
monopoly
monopolistically competitive market
The number of firms operating in such a market is large but each firm has a small market share and firms have only a limited ability to influence prices.
monopolistically competitive market
______ is one key to get sales back
Marketing promotion
The demand curve of a firm in monopolistic competition market structure is _______ sloping because of the _______ of customers for the features of the differentiated product.
downward
preference
This type of curve is based on the notion that the firm can change its price without losing all of its business because buyers do not see any perfect substitute.
monopolistic competitor
A monopolistic competitor, in the short run, is like a ____ because it is the only producer of its unique product.
monopolist
______ refers to a market situation where there is only one seller or producer supplying unique goods and services
Monopoly
It is a single seller that has a complete control over a specific industry
Monopoly
Monopoly comes from the Greek word “____” which means __ and “___” which means ___
mono - one
polist - seller
Under ____, sellers are mostly firms offering water or electricity products and services, or other public utilities.
monopoly market
____ is the opposite extreme of perfect competition. Under monopoly, the consumer has only two choices-either buying the monopolist’s product or none at all.
Monopoly
Monopoly is a market structure characterized by 3 characteristics
- a single seller or producer
- a unique product or service
- impossible entry into the market
meralco is an example of ____
monopoly
A monopoly market is comprised of a single supplier selling to a multitude of small, independently-acting buyers.
single seller or producer
A ____means that there are no close substitutes for the monopolist’s product.
unique product
Barriers to entry are so severe in a monopoly so that it is impossible for new firms to enter the market.
Impossible entry
In addition, there is no need for extensive advertising or sales promotion depending on the good or the service of the ___.
monopoly
____ is the first of three types of Imperfect competition
Monopoly
A ______ exists when there is great scope for economies of scale to be exploited over a very large range of output
natural monopoly
A ______ therefore is a situation where economies of scale are so significant that costs are only minimized when the entire output of an industry is supplied by a single producer so that supply costs are lower under monopoly than under conditions of perfect competition and oligopoly.
natural monopoly
______ tend to be associated with industries where there is a high ratio of fixed to variable costs
Natural monopoly
The _______ industry has, in the past. been considered to be a natural monopoly (especially during the time when the industry has not yet been deregulated by the Philippine government)
telecommunications
______ are price makers yet they are still subject to the law of demand
Monopolists
In a competitive market, production rises to level where marginal costs is ____ marginal revenue. In a monopoly, production rises to a level where profit per unit is ____
equal
maximized
_______ a market dominated by a few large producers or sellers of a homogeneous or differentiated product.
Oligopoly
Because of their ‘fewness’, _____have considerable control over their prices, but each must consider the possible reaction of rivals to its own pricing, output, and advertising decisions.
oligopolists
oligopoly is characterized by 3 characteristics
- few sellers
- either a homogeneous or a differentiated product
- difficult market entry
Under oligopoly, the bulk of market supply is in the hands of a relatively few large firms who sell their products to many small buyers
Few sellers
an ______ is a consequence of mutual interdependence
oligopoly
It is a condition in which an action of one firm may cause a reaction from other competing firms in the industry.
Oligopoly
In an oligopolistic market, the products offered by suppliers may be identical, or more commonly differentiated from each other in one or more respects.
Homogenous or differentiated products
Similar to monopoly, there are formidable barriers to entry which make it very difficult for new firms to enter and compete in the market.
difficult entry
Oligopoly exhibits 4 features
- Product Branding
- Entry Barriers
- Interdependent decision making
- Non-price competition
Each firm in the market is selling a branded (differentiated) product
Product Branding
_____means that firms must take into account likely reactions of their rivals to any change in price, output or forms of non-price competition.
Interdependence decision making
Significant entry barriers into the market prevent the dilution of competition in the long run which maintains supernormal profits for the dominant firms.
entry barriers
________ is a consistent feature of the competitive strategies of oligopolistic firms.
Non-price competition
________competition involves advertising and marketing strategies to increase demand and develop brand loyalty among consumers.
Non-price competition
Another type of oligopolistic behavior is _______. This is when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes prompted by the dominant firm.
price leadership
_________ occurs when firms undertake actions that are likely to minimize a competitive response, e.g., avoiding price cutting or not attacking each other’s market.
Tacit collusion
_____ is often explained by a desire to achieve joint-profit maximization within a market or prevent price and revenue instability in an industry.
Collusion
_______represents an attempt by suppliers to control supply and fix price at a level close to the level we would expect from a monopoly.
Price fixing
_______ is similar to the concept of monopoly that has one seller and many buyers
Monopsony
For monopsony, there is only_____ buyer bur _ sellers. The buyer is called the ____
one -many
monopsonist
________ occurs when there is a market power exercised by a firm when employing factors of production, having the monopsonist the control when negotiating prices.
Monopsony
_____ is perceived as being “mandatory” for businesses that need to establish a cost-advantage or a significant leadership in product quality over their rivals.
Innovation
CHAPTER SUMMARY
READY!!!
______ is a classification system for the key traits of a market, including the number of firms, the similarity of the products they sell, and the ease of entry into and exit from the market structure.
Market structure
Perfect, or pure, competition is a market structure characterized by 3 characteristics
- a large number of small firms
- homogeneous product
- very easy entry or exit from the market.
___________ states that an economy is _______ or efficient when no further changes in the economy can make one individual better off without making someone else worse off
Pareto Optimality
Monopolistic competition is a type of market structure characterized by 3 characteristics
- many small firms
- differentiated products
- easy market entry and exit.
Arguments for advertisements:
1. advertising is __________
2. advertising ______
3. advertising _________
4. advertising _____
5. advertising ________
- informative
- increases sales and permits economies of scale
- increases sales and contributes to economic growth
- supports the media
- increases competition and lowers prices
Monopoly is the opposite extreme of perfect competition. It is a market structure characterized by 3 characteristics
(1) a single seller or producer
(2) a unique produce
(3) impossible entry into the market.
A ___________ exists when there is great scope for economies of scale to be exploited over a very large range of output.
natural monopoly
______ are price makers yet they are still subject to the law of demand.
Monopolists
Monopolists are price makers yet they are still subject to the law of demand. Oligopoly is a market structure characterized by 3 charcteristics
(1) few sellers,
(2) either a homogeneous or a differentiated product
(3) difficult market entry.
_____demand curve is a curve that explains why prices charged by competing oligopolists, once established tend to be stable.
Kinked
An ____ therefore usually exhibits the following features: Product branding, Entry barriers, Interdependent decision-making and Non-price competition. . Non-price competition: Better quality of service, longer opening hours, extended warranties, discounts on product upgrades and contractual relationships with suppliers.
oligopoly
_______ is when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes prompted by the dominant firm
Price leadership
occurs where firms undertake actions that are likely to minimize a competitive response, e.g. avoiding price cutting or not attacking each other’s market.
Tacit collusion
______ represents an attempt by suppliers to control supply and fix price at a level close to the level we would expect from a monopoly.
Price fixing
___________: Enforcement problems, falling market demand and the successful entry of non-cartel firms into the industry.
Possible break-downs of cartels
________is a form of buyer concentration, that is, a market situation in which a single buyer confronts many small suppliers.
Monopsony
Important Developments of Market Structures: Increasingly most innovation is done by smaller firms; Innovation is now a continuous process; Innovation is not something left to chance; Demand innovation is becoming more important and Globalization.
