Chapter 7: Market Structures Flashcards
(32 cards)
What are the four conditions for perfect competition?
- Many buyers and sellers participate in the market
- Sellers offer identical products
- Buyers and sellers are well informed about products
- Sellers are able to enter and exit the market freely
perfect competition
a market structure in which a large number of firms all produce the same product
commodity
a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk
barrier to entry
any factor that makes it difficult for a new firm to enter a market
imperfect competition
a market structure that does not meet the conditions of perfect competition
start-up costs
the expenses a firm must pay before it can begin to produce and sell goods
monopoly
a market dominated by a single seller
economies of sale
factors that cause a producer’s average cost per unit to fall as output rises
natural monopoly
a market that runs most efficiently when one large firm supplies all of the output
government monopoly
a monopoly created by the government
patent
a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time
franchise
the right to sell a good or service within an exclusive market
license
a government issued right to operate a business
price discrimination
division of customers based on how much they will pay for a good
market power
the ability of a company to change prices and output like a monopolist
What are some examples of targeted discounts/price discrimination?
discounted airline fares, manufacturers’ rebate offers, senior citizen or student discounts, children fly or stay free promotions
What three conditions does a market need to meet for price discrimination to work?
- Some market power
- Distinct customer groups
- Difficult resale
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
What are the four conditions of monopolistic competition?
- Many firms
- Few artificial barriers to entry
- Slight control over price
- Differentiated products
differentiation
making a product different from other similar products
nonprice competition
a way to attract customers through style, service, or location, but not a lower price
What are some examples of nonprice competition?
- Physical characteristics
- Location
- Service level
- Advertising, image, or status
oligopoly
a market structure in which a few large firms dominate a market
price war
a series of competitive price cuts that lowers the market price below the cost of production