Week 4 Flashcards
What are the three types of market structures?
- Competitive Industries
- Concentrated Industries
- Natural Monopoly
These structures differ based on the number of firms, ease of entry and exit, and the ability to influence prices.
What characterizes Competitive Industries?
Many small firms, easy entry and exit, producers have little or no influence on price.
Price is determined by overall market supply and demand.
In a Perfect Competition Market, what happens when a producer raises prices?
All sales for the producer collapse as buyers move to other sellers.
This illustrates perfectly elastic demand.
What are the three conditions for Perfect Competition?
- Many small firms in the industry
- Easy entry and exit for firms
- All firms sell identical products
What is Monopolistic Competition?
Occurs when all producers are not selling an identical product or service and have differentiated products.
All firms have many small firms, and it is easy for firms to enter and exit.
What is Product Differentiation?
An attempt by producers to make their products somewhat different to cautiously raise prices.
This strategy helps firms distinguish their products from competitors.
What defines Concentrated Industries?
- Much less competition
- Producers can influence supply and price
- More difficult to enter and exit
What is Market Power?
The ability for producers or sellers to increase prices.
This often involves agreements on price and output among producers.
What is an Oligopoly?
A market structure where few producers dominate the market, accounting for 50% or more of industry sales.
The rest of the sales are split among small firms.
What is a Monopoly?
A market structure where only one firm dominates, and production equals demand.
This often results in higher prices and lower production for consumers.
What are Barriers to Entry in an Oligopoly?
- High costs to enter
- Costly promotion
- Winning consumer acceptance
What is Predatory Pricing?
Producers set prices so low that other suppliers cannot compete, forcing them out of the market.
What is Price Fixing?
When an industry dominated by few producers controls prices through agreements.
This includes agreeing to stick to a price or control supply.
What is Price Leadership?
A situation where one firm sets the price and others follow suit.
What is a Cartel?
An agreement among producers to coordinate price and output to earn monopoly prices.
What is Non-Price Competition?
Competition between sellers based on service, differentiation, and advertising rather than price.
What factors limit oligopolists from raising prices?
- Foreign competition
- Lack of cooperation among producers
- Fear of prosecution for price fixing
What is a Natural Monopoly?
A market structure with only one producer due to high capital costs spread over a maximum number of users.
What types of services typically fall under a Natural Monopoly?
Public utilities, electricity, water, postal service, natural gas, and cable television.
