Unit 4- Competitive Markets Flashcards
Define market structure
The organisation of a market in terms of the number of firms in the market and the ways in which they behave
Define price taker
A firm which passively accepts the ruling market price set by market condition outside its control
Define price maker
A firm possessing the power to set the price within the market
Define perfect competition
A market that displays the six conditions of:
A large number of buyers and sellers
Perfect market information
The ability to buy or sell as much as is desired at the ruling market price
The inability of an individual buyer or seller to influence the market price
A uniform or homogeneous product
No barriers to entry or exit in the long run
Define Competitive market
A competitive market is one in which firms strive to outdo their rivals but it does not necessarily meet all the conditions of perfect competition
Define concentrated market
A merger with few firms in extreme only 1. Eg space travel
Define pure monopoly
When there is only one firm in the market
Define Monopoly power
The power of a firm to act as a price maker rather than a price taker
Define Imperfect competition
Any market structure lying between the extremes of perfect competition and pure monopoly
Define profit maximisation
Occurs when a firms total sales revenue is furthest above cost of production
Define sales maximisation
Occurs when sales revenue is maximised
Define market share maximisation
Occurs when a firm maximises its percentage share of the market in which it sells its product
Define entry barrier
Makes it difficult for new firms to join a market
Exit barrier
Makes it difficult for firms to leave a market
Define consumer sovereignty
Through exercising their spending power consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market
Define producer sovereignty
Producers or firms in a market determine what is produced and what prices are charged
Define natural monopoly
When a country or firm has complete control of a natural resource// OR
When there is only room for one firm benefiting from economies of scale to the full
Define a patent
A strategic or man made barrier to market entry caused by government legislation protecting the right of a firm to be the sole prices of a good EG bb1 bro casting
Natural barrier to entry
Economy of scale eg lower average cost for large firm new firms are inefficient so larger costs
define artificial Barriers to entry
A barrier to the market that is man made eg patent or limit pricing/ predatory pricing
Define informative advertising
Provides consumers and producers with useful information about goods or services Increased competition as consumer have better market information
Persuasive advertising
Attempts to pursuance potential consumers often leads to captive customers who refuse to buy other products which decreases competition
Define saturation advertising
Monopolys use this advertising to prevent smaller firms joining the market which reduces competition
Define product differentiation
Making s product different from Other products through design function or production method
Define concentration ratio
Depicts the total market share of a number of leading firms in the market
Add firms together
Divide by total
X100= answer
Oligopoly
A market dominated by few firms
Define resource misallocation
When resources are allocated in a way which does not maximise economic welfare
Define collusion
Co operation entered firms to fix prices EG joint research or training
Define innovation
Converts results of invention into a marketable product
Define price competition
Reducing the price of a good or service to gain sales by making it more attractive for consumers
Define limited pricing
Reducing the price of a good to just above the average cost to deter the entry of new firms into the market.
Artificial barrier to entry
Define predatory pricing
Temporarily reducing the price of a good to below average cost to drive smaller firms or new entrants out of market
