Theme 3 - Chapter 46 Key terms

Question 1

Barriers to entry

Answer 1

Factors which make it difficult or impossible for firms to enter an industry and compete with existing producers

Question 2

Barriers to exit

Answer 2

Factors which make it difficult or impossible for firms to cease production and leave an industry

Question 3

Concentration ratio

Answer 3

The market share of the largest firms in an industry. For instance, a five firm concentration ratio of 60% shows that the five largest firms in the industry have a combined market share of 60%

Question 4

Homogenous goods

Answer 4

Goods made by different firms, but are identical

Question 5

Imperfect competition

Answer 5

A market structure where there are several or a relatively large number of firms in the industry, each of which has the ability to control the price that it sets for its product

Question 6

Interdependence

Answer 6

(In market theory) when the actions of one firm will have an impact on other firms in the market

Question 7

Limit pricing

Answer 7

When a firm, rather than short run profit maximising, sets a lot enough price to deter new entrants from coming into its market

Question 8

Market concentration

Answer 8

The degree to which the output of an industries dominated by its largest producers

Question 9

Market share

Answer 9

The proportion of sales in a market taken by firm or a group of firms

Question 10

Market structures

Answer 10

The characteristics of a market who determine the behaviour of firms within the market

Question 11

Natural Monopoly

Answer 11

Where economies are so large relative to market demand that the demand that the dominant producer in the industry will always enjoy lower costs of production than any other potential competitor

Question 12

Non Homogenous

Answer 12

Goods which are similar but not identical made by different firms, such as branded goods

Question 13

Perfect knowledge or information

Answer 13

Exists if all buyers in a market are fully informed of prices and quantities for sales, whilst producers have equal access to information about production techniques

Question 14

Production differentiation

Answer 14

Aspects of a good or service who serve to distinguish one product from another such as product formulation, packaging, marketing or availability

Question 15

Sunk costs

Answer 15

Costs of production which are not recoverable.

Question 16

Uncertainty

Answer 16

(Market theory) When one firm does not know how other firms in the market will react if it changes the strategy such as changing its price.