markets

Question 1

what is a market

Answer 1

this is a place where buyers and sellers come together to exchange goods and services for a price

Question 2

why do markets exist (4)

Answer 2

• goods e.g. cars
• services e.g. bus travel
• recourses e.g. labour
• money e.g. credit

Question 3

features of a free market (3)

Answer 3

• no barriers for firms to compete with each other
• the price is set in the market by the total demand and supply. firms are price takers not price makers
• no government interventions

Question 4

Equilibrium price (4)

Answer 4

• occurs when demand and supply curve cross
• quantity demanded by consumers is the same quality supplied by suppliers
• the market is cleared: no surplus or shortages
• price will not change unless their is a change in demand or supply conditions

Question 5

why do governments intervene

Answer 5

to alter the price or the quantity exchanged

Question 6

methods governments use to intervene (5)

Answer 6

• setting minimum price
• setting minimum price
• imposing tax
• giving subsidies
• setting a quota

Question 7

why would governments set minimum pricing (2)

Answer 7

• they may feel the equilibrium price is too low however this can cause s surplus
• setting a minimum price for farm products to the EU to ensure farmers received a decent income. farmers created more crops due to higher prices thus causing surplus

Question 8

problems with minimum pricing (3)

Answer 8

• higher prices for consumers
• development of black markets
• over-supply leading to allocative inefficiency

Question 9

why would a government set a maximum price (2)

Answer 9

• feel equilibrium is too high
• they do this to help low income consumers as part of anti inflation strategies

Question 10

imposing tax effects on markets

Answer 10

increases cost of production which reduces production and increases price for products

Question 11

imposting subsidies effects on markets

Answer 11

encourage supply and keeps prices low

Question 12

effects of quotas on markets

Answer 12

sets a quantity amount that can be supplied

Question 13

compare perfect competition with a monopoly (8)

Answer 13

many sellers - few sellers

no barriers to entry - high barriers to entry

price takers - price makers

no economies of scale - large economies of scale

same price in every part of the market - price discrimination

elastic demand curve - inelastic demand curve

homogenous products - differentiated product

normal profit in long run - abnormal profit in long run

Question 14

what are barriers to entry

Answer 14

high barriers to entry prevent potential competitors from coming into the industry

Question 15

what are market barriers

Answer 15

high spending on marketing can have created a brand image and loyally which new firms willi find hard to overcome

Question 16

what are legal barriers

Answer 16

certain laws, patents or copyright can prevent new entrants from entering a industry

Question 17

what is restrictive trade practice

Answer 17

ways existing business can try to reduce competition through refusing to buy from suppliers who sell to rival or using destroyer pricing

Question 18

what are entry costs

Answer 18

costs needed to set up in an industry which can be high for new businesses

Question 19

what are sunk costs

Answer 19

costs that cannot be recovered if a business fails and includes research and development and advertisement

Question 20

Reasons some firms are naturally monopolies (natural barriers) (4)

Answer 20

• control of supply: firm owns all of supply of raw materials
• economies of scale: hard for new firms to beak in and compete
• expense: some industries require money and most firms cannot afford this
• legal consideration: some firms can be monopolies as laws have made it illegal for other firms to set up

Question 21

what are artificial barriers

Answer 21

monopolies achieve their powerful position by creating their own artificial barriers to competition

Question 22

examples of artificial barriers (2)

Answer 22

• marketing barriers: high spending on advertisement and marketing
• restrictive trade barriers: used to restrict competition

Question 23

advantages of monopolies (3)

Answer 23

• economies of scale
• research and development
• innovation

Question 24

disadvantages of monopolies (7)

Answer 24

• output may be lower and price may be higher
• consumers may be exploited
• lack of consumer choice
• consumer satisfaction is likely to be low
• little incentive to innovate
• technical progress is reduced
• price discrimination

Question 25

monopolistic competition meaning

Answer 25

large number of small firms in the market

Question 26

oligopoly meaning

Answer 26

small number of large businesses who dominate the market

Question 27

duopoly meaning

Answer 27

only 2 businesses dominate the market

Question 28

monopoly meaning

Answer 28

only one business owns the market or a monopoly where one business has more than 25% of a share in the market

Question 29

what are the determinants of the market structure (5)

Answer 29

• number of businesses in the industry
• level of barriers to entry
• nature of the product: how similar it is compared to competitors
• ability of a business to control of influence the price
• definition of the market/industry: what is the market being assessed