chapter 23 - market structure

Question 1

definition of:

market structure

Answer 1

key characteristics of a particular market

Question 2

features of market structure

Answer 2

• degree and intensity of price & non price competition
• num & size of firms in market
• nature of barriers to entry

Question 3

types of market structure

Answer 3

• monopoly

- competitive market

Question 4

features of competitive market

Answer 4

• many firms in the industry
• none has the market power to influence market demand or market supply
• large num of firms have an impact on profit, quality, choice and price

Question 5

definition of:

price takers

Answer 5

price takers are firms that set their price according to the market price rather than determining their own prices (rely on market forces of demand & supply)

Question 6

what can influence the price?

Answer 6

• level & strength of consumers’ demand
• amount of competition from rival producers
• cost of production and level of profit needed

Question 7

pricing strategies

Answer 7

price skimming (new unique product enter market, set high price)
destruction pricing (set price lower than cost of product) 
penetration pricing (set a low price)
price wars (firms try to undercut each other’s prices)
cost-plus pricing (calculate average c.o.p each unit of output then add a mark-up for profit)

Question 8

quality

Answer 8

firms sell homogenous products

Question 9

choice

Answer 9

firms focus on producing differentiated products rather than homogenous ones (diff branding, designs, colours, catchy slogan)

Question 10

profit

Answer 10

both buyers and sellers have access to information about product and prices being charged by competitors

Question 11

how does competitive market benefit consumers?

Answer 11

• have competition, incentive to produce high quality products and goods quality service
• brings greater choice, higher output & more competitive prices

Question 12

definition of:

monopoly

Answer 12

a market structure where there is only one supplier of a good or service, with the market power to affect market supply and prices

Question 13

monopoly characteristics

Answer 13

• single supplier
• price maker
• imperfect knowledge (protect its trade secrets and prestigious position as customers and rivals have imperfect knowledge)
• barriers to entry (natural - cost of entry too high; artificial - firms use predatory pricing by lowering price to prevent new firms from making profit)

Question 14

advantages of monopoly

Answer 14

• supply larger quantities of output (economies of scale - lower average cost - can supply at lower prices)- a source of international competitiveness
• financial resources for innovation
• eliminate wasteful competition

Question 15

disadvantages of monopoly

Answer 15

• demand is price inelastic
• inefficient in resources allocation
• less incentive to innovate
• high barriers to entry to prevent new firms
• imperfect knowledge about price being charged by competitors