Market Structures

Question 1

What is a 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

What is a Monopoly?

Answer 2

1 Firm producing 100% of market output, they’re the Price Makers. Monopoly power exists when a single firm controls 25% or more of a market

Question 3

What is a Duopoly?

Answer 3

It is a form of oligopoly market where 2 firms have dominant or exclusive control over a market.

Question 4

What is an Oligopoly?

Answer 4

a few mutually interdependent firms, each needing to take account of its rivals’ reactions when deciding its own marketing strategy

Question 5

What is a Price Taker?

Answer 5

A firm which passively accepts the market price, set by the market conditions, outside of its control

Question 6

What is a Price Maker?

Answer 6

A firm processing the power to set the price within the market.

Question 7

Conditions required to form a market structure of ‘perfect competition’

Answer 7

1. Large no. of consumers and producers
2. Traded Goods are Uniform and Identical
3. No barriers to entry for new firms in the long run, or barriers to exit for firms in the market

Question 8

What is Allocative Efficiency?

Answer 8

Equilibrium Point

Question 9

What is Meant by Marginal?

Answer 9

1 Extra (next one produced/ consumed)

Question 10

What are Competitive Markets?

Answer 10

• Imperfect competition due to violating some of the 6 principle
• Competitive Markets are when firms strive to ‘outdo’ their rivals
• there are many sellers but they sell dissimilar products

Question 11

What are Concentrated Markets?

Answer 11

when there are very few firms in the market, in extreme only one firm known as pure monopoly. (these monopolies are price makers as they have monopoly power)

Question 12

What are the objectives of a Firm?

Answer 12

• Profit Maximisation
• Sales maximisation
• Growth Maximisation
• Market share maximisation
• Survival

Question 13

What are Concentration Ratios?

Answer 13

They’re ratios that indicate the total market share of a number of leading firms in a market - to calculate the concentration ratio, add up all the percentages except ‘other’.

Question 14

What is a natural Monopoly?

Answer 14

When an industry/ country has complete control of a natural resource (e.g., utility firms)

Question 15

What are the 2 types of barriers to entry?

Answer 15

Natural and Artificial

Question 16

What is a Pure Monopoly?

Answer 16

where 1 firm supplies all output in an industry without facing competition, due to high barriers to entry.

Question 17

What is Monopoly Power?

Answer 17

When there is one dominant firm in an industry, but there are other firms with substitute goods which reduces the monopoly power. - If a business owns 25% of a market share, then they have monopoly power.

Question 18

What is Consumer Sovereignty

Answer 18

Through spending power, consumers collectively determined what is produced in a market

Question 19

What is Producer Sovereignty

Answer 19

Producers determined what is produced in a market and what prices are charged

Question 20

What are the Natural Barriers to Entry

Answer 20

• Economies of Scale: producing at lower long-run average costs, more productively efficient.
• Sunk Costs: Costs that can’t be recovered if a firm decides to leave a market. e.g., Capital, equipment, lease on land/ property.

Question 21

What are the Artificial Barriers to Entry

Answer 21

strategic barriers by firms to prevent new firms entering the market

Question 22

Advantages of Monopoly

Answer 22

• Economies of Scale

- Dynamic Efficiency

Question 23

Disadvantages of Monopoly

Answer 23

• Productive and allocative inefficiency
• limited consumer choice
• Complacency

Question 24

Externalities: Private and Social Costs

Answer 24

External Costs: The externalities of production or consumption

Private Costs: The cost of doing something to a firm or consumer

Social Costs: The full cost borne to society; private costs and external costs

Allocative inefficiency: when price is less than the marginal social cost

Welfare loss: is the point of overconsumption and/or overproduction takes place.

Question 25

what is dynamic efficiency?

Answer 25

it is the productive efficiency of a firm, lower SR and LR costs with new production process

• Innovation
• Abnormal Profits

Question 26

What is x-efficiency?

Answer 26

Measures how successful a firm keeps its costs down

Question 27

what is x-inefficiency?

Answer 27

production costs could be reduced