(5) Market Structures

Question 1

Cartel

Answer 1

Formed by groups of producers who illegally decide to collude and not compete

Question 2

Collective bargaining

Answer 2

When members of a union act as a unit to increase bargaining power when negotiating with employers

Question 3

Collusion

Answer 3

Illegal cooperation between multiple firms

Question 4

Consumer surplus

Answer 4

Difference between the prices consumers are willing to pay and the prices they actually pay

Question 5

Contestability

Answer 5

Ease with which competitors can enter a market

Question 6

Deadweight loss

Answer 6

Loss of social welfare derived from economic activity

Question 7

Demerger

Answer 7

When a firm sells part of its business to create separate smaller firms

Question 8

Divorce of ownership from control

Answer 8

The process in which owners become increasingly separated from those managing the business

Question 9

Hit and run

Answer 9

Firms enter a market, make supernormal profits, then leave: possible due to low barriers to entry and exit

Question 10

Interdependence

Answer 10

Where the actions of one firm influences the actions of other firms in the market

Question 11

Kinked demand curve

Answer 11

Assumes a business may face a dual demand curve for its product based on the oligopoly market structure

Question 12

Limit pricing

Answer 12

Lowering the price of a good or service to around the average cost, creating an artificial barrier to entry

Question 13

Merger

Answer 13

Multiple firms uniting to form one larger firm

Question 14

Monopoly

Answer 14

Market with one dominant supplier

Question 15

Monopoly power

Answer 15

Ability to be a pice maker

Question 16

Oligopoly

Answer 16

Market dominated by a few firms

Question 17

Predatory pricing

Answer 17

Temporarily lowering a goods price below average cost, creating an artificial barrier to entry

Question 18

Price competition

Answer 18

Reducing the price of a product, thus stripping demand from competitors

Question 19

Price discrimination

Answer 19

When a firm charges different prices to different groups of consumers for the same good

Question 20

Price leadership

Answer 20

The dominant form in the market sets the price and less dominant firms alter their prices accordingly

Question 21

Principal-agent problem

Answer 21

Where those in control of a firm (agents), act in their own best interest, rather than that of the owners (principal)

Question 22

Producer surplus

Answer 22

Difference eternally the prices producers are willing to accept and the prices they actually accept

Question 23

Satisficing

Answer 23

Managers run firms to make the minimum level of acceptable profit

Question 24

Static efficiency

Answer 24

Efficiency in the short run

Question 25

Forms objectives

Answer 25

Survival, growth, increasing market share, quality, sales rev max, sales max

Question 26

Characteristics of a monopoly

Answer 26

-profit maximisation: earns supernormal profits -sole seller in a market -high barriers to entry -price maker -price discrimination