Market Structures Flashcards
(27 cards)
What is a market structure?
The organisation of a market in terms of the number of firms in the market, and the ways in which they behave.
What is a Monopoly?
1 Firm producing 100% of market output, they’re the Price Makers. Monopoly power exists when a single firm controls 25% or more of a market
What is a Duopoly?
It is a form of oligopoly market where 2 firms have dominant or exclusive control over a market.
What is an Oligopoly?
a few mutually interdependent firms, each needing to take account of its rivals’ reactions when deciding its own marketing strategy
What is a Price Taker?
A firm which passively accepts the market price, set by the market conditions, outside of its control
What is a Price Maker?
A firm processing the power to set the price within the market.
Conditions required to form a market structure of ‘perfect competition’
- Large no. of consumers and producers
- Traded Goods are Uniform and Identical
- No barriers to entry for new firms in the long run, or barriers to exit for firms in the market
What is Allocative Efficiency?
Equilibrium Point
What is Meant by Marginal?
1 Extra (next one produced/ consumed)
What are Competitive Markets?
- Imperfect competition due to violating some of the 6 principle
- Competitive Markets are when firms strive to ‘outdo’ their rivals
- there are many sellers but they sell dissimilar products
What are Concentrated Markets?
when there are very few firms in the market, in extreme only one firm known as pure monopoly. (these monopolies are price makers as they have monopoly power)
What are the objectives of a Firm?
- Profit Maximisation
- Sales maximisation
- Growth Maximisation
- Market share maximisation
- Survival
What are Concentration Ratios?
They’re ratios that indicate the total market share of a number of leading firms in a market - to calculate the concentration ratio, add up all the percentages except ‘other’.
What is a natural Monopoly?
When an industry/ country has complete control of a natural resource (e.g., utility firms)
What are the 2 types of barriers to entry?
Natural and Artificial
What is a Pure Monopoly?
where 1 firm supplies all output in an industry without facing competition, due to high barriers to entry.
What is Monopoly Power?
When there is one dominant firm in an industry, but there are other firms with substitute goods which reduces the monopoly power. - If a business owns 25% of a market share, then they have monopoly power.
What is Consumer Sovereignty
Through spending power, consumers collectively determined what is produced in a market
What is Producer Sovereignty
Producers determined what is produced in a market and what prices are charged
What are the Natural Barriers to Entry
- Economies of Scale: producing at lower long-run average costs, more productively efficient.
- Sunk Costs: Costs that can’t be recovered if a firm decides to leave a market. e.g., Capital, equipment, lease on land/ property.
What are the Artificial Barriers to Entry
strategic barriers by firms to prevent new firms entering the market
Advantages of Monopoly
- Economies of Scale
- Dynamic Efficiency
Disadvantages of Monopoly
- Productive and allocative inefficiency
- limited consumer choice
- Complacency
Externalities: Private and Social Costs
External Costs: The externalities of production or consumption
Private Costs: The cost of doing something to a firm or consumer
Social Costs: The full cost borne to society; private costs and external costs
Allocative inefficiency: when price is less than the marginal social cost
Welfare loss: is the point of overconsumption and/or overproduction takes place.
