Unit 3: Chapter 9: Market Structure and Competition

Question 1

Define the Term: Market

Answer 1

Arrangements that people have developed for trading with one another

Question 2

Define the Term: Competition

Answer 2

The struggle each business experiences as it seeks to survive within markets

Question 3

Define the Term: Industry

Answer 3

A group of businesses that share common concerns, sell a similar product, or produce their products in a similar way

Question 4

Define the Term: Differentiated Products

Answer 4

Products that are within the same industry but are clearly, visibly different from their competitors

Question 5

Define the Term: Undifferentiated Products

Answer 5

Products that are exactly alike within and industry and don’t vary significantly enough from producer to producer

Question 6

Define the Term: Barrier to Entry

Answer 6

Any significant obstacle that prevents or hinders a new firm from entering an industry and competing on an equal basis with established businesses

Question 7

What are the two types of Barrier to entry?

Answer 7

Natural/Artificial

Question 8

Define the Term: Natural Barriers to entry

Answer 8

When a business already in the industry owns all of a vital natural resource that a new firm would need to enter the market

Question 9

Define the Term: Artificial Barriers to Entry

Answer 9

Come from governmental regulation or licensing restrictions that prevent a new business from producing within an industry

Question 10

What are the 4 types of competition?

Answer 10

Perfect
Imperfect (monopolistic)
Oligopoly
Monopoly

Question 11

Define the Term: Perfect Competition

Answer 11

Unlimited number of firms, zero product differences, no control of price, and easy entrance/exit into and out of the market

Question 12

Define the Term: Imperfect Competition

Answer 12

Large number of firms
Some product differentiation
Limited control of price
Some small barriers to entry but not significant

Question 13

Define the Term: Oligopoly

Answer 13

Few number of businesses (as few as 2)
Differentiation depends heavily on industry (gas vs cars)
Businesses have significant control of price and can change their prices to influence competitors
Difficult to enter/exit the market due to high start up cost

Question 14

Define the Term: Monopoly

Answer 14

Only one supplier/firm
No product differentiation
Complete control of price
Almost impossible to enter/exit the market

Question 15

What are the two types of Monopoly?

Answer 15

Natural / Legal

Question 16

Define the Term: Natural Monopoly

Answer 16

When a business controls all of the resources needed to engage in the industry

Question 17

Define the Term: Legal Monopoly

Answer 17

When a government has allowed a business exclusive rights to provide a good or service

Question 18

What are the 5 Major laws restricting/controlling monopolies?

Answer 18

Sherman Antitrust Act
Clayton Act
Federal Trade Commission Act
Robinson Patman Act
Celler-Kefauver Act

Question 19

Define the Term: Trust

Answer 19

When industries put their controlling interests into a trust and assign someone to look after the affairs of all companies within the trust