Chapter 7.1 Flashcards
Market power
The extent to which an individual firm in an industry is able to control the price at which it sells its product
Monopoly
When there is a single firm in the market
Imperfect competition
A situation where firms face some competition but also have market power
What is the only market structure where firms will achieve allocative efficiency?
Perfect competition, where firms have zero market power
Which market structure will result in the greatest degree of allocative inefficiency
Monopoly
Product differentiation
How similar or different the goods or services are
Barriers to entry
Factors that can prevent a firm from entering an industry and beginning production
Free entry
When there are no barriers to entry into an industry
What are the three other characteristics used to differentiate between market structures?
Number of firms
Product differentiation
Barriers to entry
Characteristics of perfect competition
A large number of firms in the industry
All firms sell homogenous products
No barriers to entry
Homogenous product
All products produced are identical, there are no brand names
Characteristics of monopoly
There is a single seller or dominant firm
The firm produces and sells a unique good or service with no substitutes
There are high barriers to entry
Characteristics of monopolistic competition
There is a fairly large number of small sized firms
There are no barriers to entry
There is product differentiation
Characteristics of oligopoly
Small number of large firms in the industry
Products may or may not be differentiated
High barriers to entry
