Topic 2: Decesion making in the market

Question 1

Define what is a market

Answer 1

A market is simply an organization where buyers and sellers of particular good and/or service negotiate an agreeable price

Question 2

What is the Different Market structure in order of Competition power (Strongest to weakest)

Answer 2

• Pure competition
• Monopolistic competition
• Oligopoly
• Pure monopoly

Question 3

Explain all the Factors of a pure competition market structure

Answer 3

• Many buyers and sellers in the industry
• Strong competition
• Little market power to set their prices

Question 4

Explain all the factors of a Monopolistic competition

Answer 4

• Moderate number of buyers and sellers in the industry
• Quite Strong competition
• Product or brand name differentiation is important
• Little market power to set their prices

Question 5

Explain all the factors of a Oligopoly

Answer 5

• Relatively few (usually up to 8 or 10) but large sellers control the industry
• Potential for collusion and abuse of market power
• Product or brand name differentiation is quite important
• Fairly difficult entry and exit by new firms because of well established companies

Question 6

Explain all the factor of pure monopoly

Answer 6

• One seller controls the output of the industry
• Weak competition no rivals
• Product differentiation is unimportant
• The firm is a price marker and has a lot of market power

Question 7

What does the law of demand state

Answer 7

The law of Demand states as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa.

Question 8

What happens to the demand line when the price of a product increases/Decreases

Answer 8

• As the price increases, there is a contradiction in the quantity demanded, causing a movement upwards along the demand line.
• As the price decreases there is an expansion in the quantity demanded, causing a movement downwards along the demand line.

Question 9

What does the law supply state

Answer 9

The law of supply states that the quantity of particular good or service that a businesses are prepared to supply varies directly with a change in its price.

Question 10

What happens to the supply line when the price of a product increases/Decreases

Answer 10

• As the price increases, there is a expansion in the quantity demanded, causing a movement upwards along the supply line.
• As the price decreases there is an Contraction in the quantity demanded, causing a movement downwards along the supply line.

Question 11

What are non price factors that causes shift in the supply curve

Answer 11

• Increase or decrease in the supply
• Resources used by business become cheaper
• Increased efficiency
• More favorable climatic conditions
• Changes or introductions of Government policies

Question 12

What are non price factors that causes shift in the Demand curve

Answer 12

• An increase or decrease in population’s disposable income
• Changes in trend
• Changes in the demographic
• Available substitutes