Unit 4- Competitive Markets

Question 1

Define market structure

Answer 1

The organisation of a market in terms of the number of firms in the market and the ways in which they behave

Question 2

Define price taker

Answer 2

A firm which passively accepts the ruling market price set by market condition outside its control

Question 3

Define price maker

Answer 3

A firm possessing the power to set the price within the market

Question 4

Define perfect competition

Answer 4

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

Question 5

Define Competitive market

Answer 5

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

Question 6

Define concentrated market

Answer 6

A merger with few firms in extreme only 1. Eg space travel

Question 7

Define pure monopoly

Answer 7

When there is only one firm in the market

Question 8

Define Monopoly power

Answer 8

The power of a firm to act as a price maker rather than a price taker

Question 9

Define Imperfect competition

Answer 9

Any market structure lying between the extremes of perfect competition and pure monopoly

Question 10

Define profit maximisation

Answer 10

Occurs when a firms total sales revenue is furthest above cost of production

Question 11

Define sales maximisation

Answer 11

Occurs when sales revenue is maximised

Question 12

Define market share maximisation

Answer 12

Occurs when a firm maximises its percentage share of the market in which it sells its product

Question 13

Define entry barrier

Answer 13

Makes it difficult for new firms to join a market

Question 14

Exit barrier

Answer 14

Makes it difficult for firms to leave a market

Question 15

Define consumer sovereignty

Answer 15

Through exercising their spending power consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market

Question 16

Define producer sovereignty

Answer 16

Producers or firms in a market determine what is produced and what prices are charged

Question 17

Define natural monopoly

Answer 17

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

Question 18

Define a patent

Answer 18

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

Question 19

Natural barrier to entry

Answer 19

Economy of scale eg lower average cost for large firm new firms are inefficient so larger costs

Question 20

define artificial Barriers to entry

Answer 20

A barrier to the market that is man made eg patent or limit pricing/ predatory pricing

Question 21

Define informative advertising

Answer 21

Provides consumers and producers with useful information about goods or services Increased competition as consumer have better market information

Question 22

Persuasive advertising

Answer 22

Attempts to pursuance potential consumers often leads to captive customers who refuse to buy other products which decreases competition

Question 23

Define saturation advertising

Answer 23

Monopolys use this advertising to prevent smaller firms joining the market which reduces competition

Question 24

Define product differentiation

Answer 24

Making s product different from Other products through design function or production method

Question 25

Define concentration ratio

Answer 25

Depicts the total market share of a number of leading firms in the market

Add firms together
Divide by total

X100= answer

Question 26

Oligopoly

Answer 26

A market dominated by few firms

Question 27

Define resource misallocation

Answer 27

When resources are allocated in a way which does not maximise economic welfare

Question 28

Define collusion

Answer 28

Co operation entered firms to fix prices EG joint research or training

Question 29

Define innovation

Answer 29

Converts results of invention into a marketable product

Question 30

Define price competition

Answer 30

Reducing the price of a good or service to gain sales by making it more attractive for consumers

Question 31

Define limited pricing

Answer 31

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

Question 32

Define predatory pricing

Answer 32

Temporarily reducing the price of a good to below average cost to drive smaller firms or new entrants out of market