unit 3: the market

Question 1

define and list the types of markets

Answer 1

market: a place where buyers and sellers come together to exchange goods or services for money
- perfect competition
- monopoly market
- monopolistic competition

Question 2

list the characterisitics of a monopoly market and a perfect competition

Answer 2

monopoly market
- only one seller, so one firm controls entire market
- can set any price it wishes since it has all the market power
- firms sell unique products that have no close competition

perfect competition
- all firms sell identical products
- must be many buyers and sellers so the behaviour of any one buyer or seller has no influence on market price
- anyone may enter freely into the market

Question 2

explain the different types of markets

Answer 2

perfect competition- market structure in which there many utility maximising buyers of and profit maximising sellers of a homogenous good/service in which there is perfect mobility of factors of production and buyers

monopoly- firm that dominates the whole indurty with a single product or service and faces no competition

monopolistic competition- market structure in which many small firms sell similar but not identical products

Question 3

list the characteristics of a monopolistic competition

Answer 3

• there are many small firms
• products sold are similar not identical
• low barriers to entry

Question 4

list the factors affecting change in demand

I-T/F-A-P/C-P/S-EX/EC-PS/S

Answer 4

• income
• tastes and fashion
• advertising
• price of complimentary good
• price of substitute
• expectations about the economy
• population size and structure

Question 5

what is the law of supply?

Answer 5

the lower the price, the lower the supply

Question 6

list the factors affecting change in supply

Answer 6

• production cost
• climate and other natural conditions
• taxes and subsidies
• price of a compliment in production
• number of suppliers in an economy
• price of substitute in production
• changes in technology

Question 7

define equilibrium

Answer 7

situation in a market where the quantity demanded is equal to the quantitiy supplied

Question 8

what are the barriers to entry into a market?

Answer 8

• capital barriers: amount of capital investments needed
• legal barriers: some businesses have legal right to be a sole supplier/producer of a certain good/service like microsoft
• marketing barriers:
• distribution barriers

Question 9

differentiate between price elsticity of demand and supply

Answer 9

price elasticity of demand: responsiveness of quantity demanded to a change in price

price elasticity of supply: refers to the way in which quantity supplied changes as a result of a change in price

Question 10

what are the factors affecting PED PES?

Answer 10

PED
- availability os substitutes
- habit forming goods
- luxuries or necesseties

PES
- space capacity in factories

Question 11

define advertising

Answer 11

process of creating product awareness to consumers through media

Question 11

what is the purpose of advertising?

Answer 11

• to influence demand for goods or services
• to create a brand image
• to create customer loyalty
• to deter new competition
• to maximise profit

Question 12

what are the aadvantages and disadvantages of advertising?

Answer 12

advs
- lets consumers know about new product
- helps a firm increase its sales compared to its rivals

disadvs
- expensive
- can be misleading

Question 13

list the methods of advertising

Answer 13

• television
• radio
• cinema
• newspaper and magazines

Question 14

what are the objectives of pricing?

Answer 14

• profit maximising
• sales maximising
• maintaining a status quo

Question 15

lidt and explain the types of pricing policies (strategies)

Answer 15

• price skimming: applied when new products are introduced into the market
• penetration priving: when a low price is charged in oder to attract sales and penetrate the market
• competition based pricing: putting price in line with competitors to obtain/maintain market share
• destroyer pricing: setting a very low price to eliminate competition from the competition
• perceived value pricing: based on the consumer’s perception of value of moeny for the product