Week 3 - market structure

Question 1

What is market structure

Answer 1

refers to the amount of competition that exists in a market between producers

Question 2

What does market structure depend on (competition)

Answer 2

• number of firms
• size of firms
• demand
• supply conditions
• ease of entry and exit

Question 3

Benefits of competition

Answer 3

• lower prices
• greater quality of goods and services
• greater variety
• research and development improves innovation
• better information

Question 4

Perfect competition - price

Answer 4

One unitary price for all alike goods

Question 5

perfect competition - barriers to entry

Answer 5

no barriers to entry, nothing to prevent a new firm setting up production in the industry

Question 5

perfect competition - knowledge

Answer 5

producers have perfect knowledge of prices and costs of other producers, consumers know the prices charged by all firms

Question 5

Perfect competition - homogenous product

Answer 5

All units of the good are identical to one another

Question 6

perfect competition - mobility

Answer 6

people, machine and land can be used for any purpose and consumers are free to purchase the good from a producer

Question 7

Perfect competition - many buyers and sellers

Answer 7

no single seller has monopoly of the market and therefore cannot influence the price

Question 8

What is normal profit

Answer 8

The minimum level of profit

Question 9

Abnormal profit

Answer 9

any profit on top of or over the minimum (normal) level

Question 10

Is abnormal profit sustainable in the long term

Answer 10

No, the low barriers to entry allows other firm to enter the market and also earn abnormal profit

Question 11

What is a monopoly

Answer 11

A market where the is no competition, there is a single producer supplying the whole market

Question 12

Factors affecting the power of the monopolist

Answer 12

Availability of substitutes, height of barriers to entry

Question 13

Example of a monopoly

Answer 13

British rail have monopoly power in the rail travel industry

Question 14

What is an oligopolistic business

Answer 14

Where a small number of producers supply a market in which the product is differentiated in some way

Question 15

Price competition with oligopolies

Answer 15

Little price competition as firms would be reluctant to raise prices in case their competitors do not and they price themselves out of competition

Question 16

What is collusion

Answer 16

A cooperative agreement between competing firms to influence market outcomes to achieve market outcomes and get higher profits at the expense of competition

Question 17

Examples of oligopoly products

Answer 17

Tabaco ,soap power

Question 18

What is monopolistic competition

Answer 18

When all the conditions of the perfect competition are met other then the existence of a single good, so each firm has a monopoly over their own good but there is high competition from other suppliers

Question 19

Example of a monopolistic firm

Answer 19

AkzoNobel is the only producer of Dulux paint, but there are other paint sellers in the market

Question 20

Examples of barriers to entry

Answer 20

• cost advantage
• aggressive tactics e.g price wars and intimidation
• control over access to customers
• mergers and takeovers
• legal protection

Question 21

Porters 5 forces - current competition

Answer 21

Looks at the degree of competition among existing firms in the industry

Question 22

p5f - current competition impact on market structure

Answer 22

Firms positioned in a highly competition market may be unhappy with their position and change their lack of power through pricing changes

Question 23

P5F - potential competition

Answer 23

Examines the ease or difficulty at which a new competitor can enter a market

Question 24

P5F - threat of substitutes

Answer 24

The likelihood of a customer finding a different way of doing what you do.
The threat of substitutes depends on the nature of the good and the extent of product differentiation

Question 25

P5F - power of buyers

Answer 25

Analyses the influence customers have on the pricing and quality of goods and services

Question 26

P5F- Power of sellers

Answer 26

Assesses how much power suppliers have over the pricing and supply of goods and services

Question 27

What does the power of a seller dependent on

Answer 27

If the product is specialised, if there is a similar product elsewhere, how important a product is in the production process

Question 28

What is a transaction cost economy concerned with

Answer 28

If a firm can produce the components it needs in the production process
(if it can the power of supply greatly reduces)

Question 29

Reason for highly concentrated markets

Answer 29

Minimum efficient scale - the point at which all economies of scale have been achieved by the firm and the point at which firms that want to maximise efficiency must operate