macroeconomics chapter 4

Question 1

market structure

Answer 1

the organisation of a market the number of firms and how they behave

Question 2

price taker

Answer 2

a firm which passively accepts the ruling market price set by conditions outside its control

Question 3

price maker

Answer 3

firm possessing power to set the price within the market

Question 4

perfect competition

Answer 4

• perfect market information
• uniform products
• no barriers to entry or exit of the market
• the ability to buy or sell as much as desired at the ruling market price
• large number of buyers and sellers
• no individual can affect the price

Question 5

competitive market

Answer 5

where firms strive to outdo there opponents but it does not meet conditions of a perfect market

Question 6

concentrated market

Answer 6

contains very few firms

Question 7

pure monopoly

Answer 7

only one firm

Question 8

monopoly power

Answer 8

the power to act as price maker

Question 9

imperfect competition

Answer 9

anything lying between pure monopoly and perfect competition

Question 10

consumer sovereignty

Answer 10

through exercising spending power consumers collectively determine what is produced in the market

Question 11

producer sovereignty

Answer 11

firms decide what is produced and the price charged

Question 12

natural monopoly

Answer 12

when a country has complete control of a natural resource

or when there is only room for one firm in a market benefiting from economies of scale

Question 13

patent

Answer 13

strategic or man made barrier to entry of as market due to government legislation

Question 14

informative advertising

Answer 14

provides useful information about goods and services

Question 15

persuasive advertising

Answer 15

trys to persuade potential customers that a good has desirable characteristics so is worth buying

Question 16

saturation advertising

Answer 16

floods market with information and persuasive advertising acts as a man made barrier for entry making it difficult to compete for small firms

Question 17

product differntiation

Answer 17

making a product different through
method
design
functionality

Question 18

concentration ratio

Answer 18

indicates total market share of a number of firms

output of the firms against as a percentage of total market output

Question 19

oligopoly

Answer 19

market dominated by a few firms

Question 20

resource misallocation

Answer 20

when resources are allocated in a way that does not maximise economic welfare

Question 21

collusion

Answer 21

cooperation between firms

Question 22

price competition

Answer 22

reducing the price to gain sales

Question 23

limit pricing

Answer 23

reducing price to just above average cost to prevent entry of new firms makes it unprofitable

Question 24

predatory pricing

Answer 24

reduce costs to below average costs to drive out small firms