unit 4: key words

Question 1

market structure

Answer 1

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

Question 2

price taker

Answer 2

firm
passively accepts the ruling market price
by conditions outside its control

Question 3

price maker

Answer 3

firm
possessing power to set price within a market
(inelastic)

Question 4

perfect competition

Answer 4

market that displays the 6 conditions

• large number of buyers / sellers
• perfect market information
• ability to buy / sell desired amount at ruling MP
• inability of single buyer / seller to influence MP
• uniform / homogeneous product
• no barriers to entry / exist in long run

Question 5

competitive market

Answer 5

firms
strive to outdo their rivals
doesn’t necessarily meet all 6 conditions of perfect demand

Question 6

concentrated market

Answer 6

containing few firms, or even one

Question 7

pure monopoly

Answer 7

only one firm in a market

Question 8

monopoly power

Answer 8

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

Question 9

imperfect competition

Answer 9

market structure

between perfect competition and pure monopoly

Question 10

profit maximisation

Answer 10

firms total sales revenue is furthest above total costs of production

Question 11

sales maximisation

Answer 11

sales revenue is maximised

Question 12

market share maximisation

Answer 12

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

Question 13

entry barrier

Answer 13

makes it difficult / impossible for new firms to enter a market

Question 14

exit barrier

Answer 14

makes it difficult / impossible for firms to leave the market

Question 15

consumer sovereignty

Answer 15

consumers determine what is produced in a market
by exercising spending power
strongest in a perfectly competitive market

Question 16

producer sovereignty

Answer 16

producers / firm
in a market
determine what is produced
and at what prices

Question 17

natural monopoly

Answer 17

-1st meaning
country / firm
complete control or a natural resource

-2nd meaning
only room in a market for on firm benefiting from economies of scale to the full

Question 18

patent

Answer 18

strategic / man made barrier
for market entry
caused by government legislation
protecting the right of a firm to be the sole producer of a patented good

unless the firm grants royalties for other firms to produce the good

Question 19

natural barrier to market entry

Answer 19

barrier to entering a market that is not man made

Question 20

artificial barrier to entry

Answer 20

barrier to market entry that Is man made

Question 21

informative advertising

Answer 21

provides consumers and producers with useful information about goods or services

Question 22

persuasive advertising

Answer 22

persuades potential customers
that a good or service possesses desirable characteristics
that make it worth buying

Question 23

saturation advertising

Answer 23

flooding the market with information and persuasion about a firms product
functions as a man made barrier to market entry by making it difficult for firms to compete

Question 24

product differentiation

Answer 24

making a product different from its rivals

by product design

Question 25

quantity setter

Answer 25

a firm choses quantity of a good to sell rather than its price
in monopoly, market demand curve dictates maximum price that can be charged
(if the firm successfully sells chosen quantity)

Question 26

concentration ratio

Answer 26

ratio which indicates total market share of a number of leading firms in the market
or output of these firms as a percentage of total market output

Question 27

oligopoly

Answer 27

market dominated by a few firms

Question 28

resource misallocation

Answer 28

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

Question 29

collusion

Answer 29

co-operation between firms
ie to fix prices
sometimes for public interest
ie joint research / labour training schemes

Question 30

invention

Answer 30

creates new ideas

for products / processes

Question 31

innovation

Answer 31

converts the results of invention into marketable products or services

Question 32

price competition

Answer 32

reducing price to gain sales

more attractive to consumers leads to more revenue

Question 33

limit pricing

Answer 33

reducing the price to just above AVG. cost
to deter the entry of new firms into the market

prices set to make it unlikely for new firms to make profit

Question 34

predatory pricing

Answer 34

temporarily reducing price of a good
below AVG. cost to drive small firms / new entrants out of the market

later on have more market price control and chance to regain profit