Micro Book 5

Question 1

What are the key characteristics of a market in Perfect Competition

Answer 1

Many buyers and sellers
Goods are homogeneous
No barriers to entry/exit
Firms are “price-takers”
Perfect Knowledge

Question 2

Why are firms the price-takers in a market under perfect competition

Answer 2

The market price is set through the market forces of supply and demand

A consumer would know if they were worse-off at higher prices and would instead use their perfect knowledge to buy from another firm

Question 3

What describes a market in Monopolistic Competion

Answer 3

Goods are somewhat differentiated
Many buyers and sellers

Question 4

What describes a market in Oligopolistic Competition

Answer 4

A market is dominated by a few firms between who there is conscious interdependence

Question 5

What is conscious interdependence between firms

Answer 5

Each firm is affected by the decisions of other firms and they are aware of that

Question 6

What describes a Monopoly

Answer 6

When a firm IS the industry (25%+ market share)

Question 7

What is a natural monopoly

Answer 7

Industries with very high fixed costs so it is better to have one supplier

Question 8

How is a natural monopoly graph different from a monopoly graph

Answer 8

The minimum efficient scale of production is not shown (LRAC and LRMC never meet)

Question 9

Why does an oligopoly have a kinked demand curve

Answer 9

Demand is price elastic for price increases and demand is price inelastic for price decreases

Question 10

What is a group of firms acting as one called

Answer 10

A cartel

Question 11

What is a situation where no player can be better off by changing their own decision

Answer 11

A nash equilibrium

Question 12

What is price discrimination

Answer 12

A firm is able to charge a different price for the same good or service

Question 13

What are the conditions needed for price discrimination to take place

Answer 13

Must be able to split the market into distinct groups
Must be able to keep the group seperate at relatively low cost

Question 14

First-Degree Price Discrimination is?

Answer 14

Charging every customer the maximum that they are willing to pay

Question 15

Second-Degree Price Discrimination

Answer 15

Price tends to fall as the quantity brought increases

Question 16

Third-Degree Price Discrimination

Answer 16

Monopolist splits customers into two or more seperate groups

Question 17

What does market share measure

Answer 17

The proportion of sales accuring to a given number of firms

Question 18

How is a firm’s concentration ratio worked out

Answer 18

(Sales of Leading X firms) / (Sales of whole industry) * 100

Question 19

Why is all profit in a perfectly competitive market only in the short run

Answer 19

Due to “Hit and run” entries. Firms join the market and continue to do so which lowers the price

Question 20

Where would monopolies produce in a competitive market

Answer 20

Where S = MC is equal to D = AR

Question 21

What is De-nationalisation

Answer 21

A transfer of ownership of state-owned enterprises into private hands

Question 22

What is Contracting out

Answer 22

When the state enterprises remain in state hands but private firms are brought in to provide services

Question 23

What is regulatory capture

Answer 23

When regulators “side” with the company that they are meant to be regulating.

Question 24

What is customer inertia

Answer 24

When customers tend to remain with a provider as it is easier than switching