U1 AOS 2 - Lesson 16/17 - Market Structures Flashcards
Market Power
Ability of any particular businesses or group of businesses to control or manipulate prices or quantities in a market
Characteristics of a Perfectly Competitive Market
- Large number of buyers and sellers
- Perfectly homogenous products
- No barriers to entry or exit
- Buyers and sellers possess perfect information
- Consumer sovereignty exists
- Absence of government controls and restrictions
Characteristics of Monopolistic Competition
- Large number of buyers and sellers
- Products are not homogenous due to branding and advertising
- No barriers to entry or exit
- Buyers and sellers possess perfect information
Characteristics of Oligopolies
- Small number of producers (2-3)
- High market power
- High barriers to entry and exit
- Imperfect information
Characteristics of Monopoles
- One producer
- Very high market power
- High barriers to entry and exit
High market power means that a producer is a price ______
Maker
Low market power means that a producer is a price ______
Taker
Assumptions of Perfectly Competitive Markets
- Buyers and sellers operate with full information
- Resources are mobile
- Behaviour is rational
Impacts of Perfectly Competitive Markets
- Firms need to keep costs low in order to remain profitable and survive → increased productive efficiency → lower prices → improve material living standards
- Goods and services are homogenous → only compete on price
- Low barriers to entry and exit → firms are able to respond to changes in the economy
- Full information → consumers are able to choose the good/service that best suits their needs → improve living standards
- Rational behaviour → firms aim to maximise profits while consumers aim to choose good that maximises utility → improve living standards
Impact of Different Market Structures on Price
- Perfectly Competitive Market → low prices
- Monopolistic Competition → relatively low prices
- Oligopoly → relatively high prices
- Monopoly → high prices
VCAA 2018
Question 11
Which one of the following is not a feature of a perfectly competitive market?
A. Firms have ease of entry into and exit from the market.
B. Products sold in the market are homogenous.
C. Consumer sovereignty exists.
D. Resources are not mobile.
D - resources are should be mobile
What are the four main types of market structures?
Perfect competition, monopolistic competition, oligopoly, and monopoly.
Fill in the blank: In a __________ market structure, firms sell differentiated products and have some control over pricing.
monopolistic competition
True or False: In a perfect competitive market, firms can set their own prices.
False
Fill in the blank: In a perfect competitive market, firms are considered _______ price takers.
price
Which of the following is NOT a characteristic of a perfect competitive market? A) Many buyers and sellers B) Homogeneous products C) Barriers to entry D) Perfect information
C) Barriers to entry
What is efficient allocation of resources?
The process of distributing resources in a way that maximizes the overall benefit or utility.
True or False: Efficient allocation of resources always leads to equal distribution among all parties.
False
Fill in the blank: The concept of ___________ refers to the optimal distribution of scarce resources to meet the needs and wants of individuals and society.
efficiency
Which economic principle is primarily concerned with the efficient allocation of resources?
The principle of supply and demand.
