Booklet 5

Question 1

What is called when colluding firms act together, effectively behaving as if they were one firm (usually to exert monopoly power)?

Answer 1

A cartel

Question 2

What is it called when independent firms agree to jointly fix output or prices rather than competing?

Answer 2

Collusion

Question 3

What is a government policy aimed at reducing monopoly power in order to protect consumers’ interests?

Answer 3

Competition policy

Question 4

What is the proportion of sales in a market accruing to a given number of leading firms?

Answer 4

Concentration ratio

Question 5

What is the process by which a state-owned firm hires a private firm to provide ancillary services?

Answer 5

Contracting out (contractualisation)

Question 6

What is the tendency of consumers to remain with one provider (usually of services) when there may be a better value option available?

Answer 6

Customer inertia

Question 7

What is the process of removing regulations?

Answer 7

De-regulation

Question 8

What in game theory, is the most rewarding option for a “player” to pursue?

Answer 8

Dominant strategy

Question 9

What is it called when firms enter a market in pursuit of economic profit and then leave the market once it has been exhausted?

Answer 9

Hit-and-run entry

Question 10

What is called to charge each individual the maximum that they are prepared to pay for a product?

Answer 10

First degree price discrimination

Question 11

What is called to charge a price that is so low that there is no incentive for firms to enter the market as it would be unprofitable to do so?

Answer 11

Limit pricing

Question 12

What is the proportion of sales in a market accruing to a particular firm?

Answer 12

Market share

Question 13

What is the highly competitive market structure with many firms who are able to differentiate their product?

Answer 13

Monopolistic competition

Question 14

What is the outcome in a game where no player can improve their pay-off simply by changing their own decision?

Answer 14

Nash equilibrium

Question 15

What is the process by which a firm or industry is taken into state ownership?

Answer 15

Nationalisation

Question 16

What is an industry with very high fixed costs, which lends itself ideally to a single firm, so that average costs can be spread?

Answer 16

A natural monopoly

Question 17

What is a market dominated by a few firms between whom there is conscious interdependence?

Answer 17

An oligopoly

Question 18

What is a market with many buyers and sellers of a homogenous product, freedom of entry and exit and perfect knowledge called?

Answer 18

Perfect competition

Question 19

What is it called to charge a price that is so low that rival firms cannot compete and are forced to leave the market?

Answer 19

Predatory pricing

Question 20

What is an agreement between rival firms to maintain prices that are artificially low (e.g. in paying suppliers) or high (charged to customers)?

Answer 20

Price fixing

Question 21

What is it called when firms follow the price set by the market leader without the need for an explicit agreement?

Answer 21

(Barometric) price leadership

Question 22

What is the practice of charging different consumers different prices for the same good or service?

Answer 22

Price discrimination

Question 23

What is the process by which a firm or industry is transferred from state ownership into private ownership?

Answer 23

Privatisation

Question 24

What is a market with literally just one seller with 100% market share?

Answer 24

Pure monopoly

Question 25

What is the tendency of the regulator in an industry to sympathise/side with producers rather than the consumers they are supposed to protect, causing government failure?

Answer 25

Regulatory capture

Question 26

What is selling off surplus capacity at a lower price or at a discount for buying in greater quantities called?

Answer 26

Second-degree price discrimination

Question 27

What is the monetary value of a firms' sales in a given time period?

Answer 27

Sales value

Question 28

What is the number of units of output that a firm sells in a given time period?

Answer 28

Sales volume

Question 29

What is dividing a market into different sub-markets and charging different groups of people (with different willingness to pay) different prices called?

Answer 29

Third-degree price discrimination

Question 30

What is a firm with more than 25% market share?

Answer 30

A working monopoly

Question 31

Describe the spectrum of competition.

Answer 31

Most competitive to least competitive: Perfect Competition Monopolistic Competition Oligopoly Duopoly Monopoly

Question 32

What are some aspects of the structure of the market?

Answer 32

Number and size of firms Possibility of entry Homogeneity/ Differentiation Extent of knowledge Extent to which one firms actions affect others

Question 33

What are some aspects of the conduct of a market?

Answer 33

Buyer/Seller Behaviour Pricing Advertising Investment

Question 34

What are some aspects of the performance of a market?

Answer 34

Efficiency Profit

Question 35

What type of concentration ratio would an oligopolistic market typically have?

Answer 35

High concentration ratios

Question 36

How can sales be measured?

Answer 36

Sales volume → the number of units sold Sales value → the total value in monetary terms of all the output produced by a firm.

Question 37

Give the formula for market share.

Answer 37

x - firm concentration ratio = (sales of leading x firms / sales of whole industry) x 100

Question 38

What are the five key characteristics of a market which is perfectly competitive?

Answer 38

Many buyers and sellers Goods are homogeneous No barriers to entry/exit Perfect Knowledge Firms are 'price-takers' not 'price-makers'

Question 39

What are the three characteristics that make monopolist competition similar to perfect competition?

Answer 39

Large number of firms in the market No barriers to entry or exit Only normal profit can be earned in the long run

Question 40

What is the characteristic that makes monopolistic competition different to perfect competition?

Answer 40

Goods are somewhat differentiate, therefore each firm faces a downward sloping demand/average revenue curve As as result there is a lower and steeper MR curve

Question 41

Give three examples of oligopolistic markets

Answer 41

Film industry Mobile Networks Chocolate

Question 42

What happens in an oligopoly when one firm cuts its prices?

Answer 42

Everyone will follow

Question 43

What happens in an oligopoly when a firm puts its prices up?

Answer 43

Other firms won't follow (+ gain more market share)

Question 44

What will firms use as non-price competition in an oligopolistic market?

Answer 44

Quality Customer Service After-sales service and warranties etc. Advertising/Branding