Section 4 - Market Structures

Question 1

Perfect competition

Answer 1

A description of how a market would work if certain conditions were satisfied

Question 2

Perfect information for consumers

Answer 2

Perfect knowledge of all goods and prices in a market

Question 3

Perfect information for producers

Answer 3

Perfect knowledge of the market and production methods

Question 4

Allocative efficiency

Answer 4

When a good’s price is equal to what consumers want to pay for it

Question 5

Productive efficiency

Answer 5

Ensuring the costs of production are as low as they can be

Question 6

X-efficiency

Answer 6

Measures how successfully a firm keeps its costs down.

Question 7

X-inefficiency

Answer 7

Production costs could be reduced at that level of production

Question 8

Dynamic efficiency

Answer 8

Improving efficiency in the long term; refers to the willingness and eagerness of firms

Question 9

Internal market

Answer 9

Where different parts of the same organisation compete against each other

Question 10

Barrier to entry

Answer 10

Any potential difficulty or expense a firm might face if it wants to enter a market

Question 11

Incumbent firms

Answer 11

Firms that are already in the market

Question 12

Predatory pricing

Answer 12

Incumbent firms lowering prices to a level that drive entrants out of business

Question 13

Monopoly (pure monopoly)

Answer 13

A market with only one firm in it

Question 14

Monopsony

Answer 14

A situation when a single buyer dominates a market

Question 15

Price discrimination

Answer 15

When a seller charges different prices to different customers for exactly the same product

Question 16

Consumer surplus

Answer 16

The difference between the actual selling price of a product and the price a consumer would have been willing to pay

Question 17

First degree price discrimination

Answer 17

Where each individual customer is charged the maximum they would be willing to pay

Question 18

Second Degree price discrimination

Answer 18

Often used in wholesale markets, where lower prices are charged to people who purchase larger quantities

Question 19

Third degree price discrimination

Answer 19

When the firm charges different prices for the same product to different segments of the market

Question 20

Concentrated markets

Answer 20

Industries that are dominated by just a few companies (even though there may be many firms in that industry overall)

Question 21

Oligopoly ( market structure)

Answer 21

A market that is dominated by just a few firms, has high barriers to entry, and offers differentiated products

Question 22

Oligopoly (conduct of firms)

Answer 22

A market in which firms are interdependent and use competitive or collusive strategies to make this interdependence work to their advantage

Question 23

Competitive behaviour

Answer 23

When the various firms don’t cooperate, but compete with each other

Question 24

Collusive behaviour

Answer 24

When the various firms cooperate with each other especially over what prices are charged

Question 25

Collusive oligopolies

Answer 25

Lead to higher prices and restricted output, and allocative and productive inefficiency

Question 26

Output quotas

Answer 26

The level of output each of the firms will produce

Question 27

Interdependency of firms

Answer 27

Each firm is affected by the behaviour of the others

Question 28

Game theory

Answer 28

Two or more 'players' ( people, firms etc.) are each trying to further their own interests. The fate depends on their own and others decisions

Question 29

Prisoner's dilemma

Answer 29

How interdependent firms might act in an oligopolistic market.

Question 30

First- mover advantage

Answer 30

a firm's ability to be better off than its competitors as a result of being first to market in a new product category

Question 31

Payoff matrix

Answer 31

The potential profits and losses that each firm could make in the various possible scenarios

Question 32

Monopolistic competition (imperfect competition)

Answer 32

Some product differentiation and very low barriers to entry

Question 33

Contestability

Answer 33

How open a market is to new competitors, even if currently there's little actual competition

Question 33

Contestable markets

Answer 33

Barriers to entry and exit are low and supernormal profits can be made by new firms ( in short run )

Question 34

Patents

Answer 34

Give a firm legal protection against other firms copying its products or production methods.

Question 35

Sunk costs

Answer 35

When costs can't be recovered when a firm leaves an industry

Question 36

Hit and run tactics

Answer 36

This means entering a market while supernormal profits can be made and leaving once prices fall down to normal-profit levels

Question 37

Technological change

Answer 37

The invention of new products and services, or new production methods

Question 38

Invention

Answer 38

Making something new

Question 39

Innovation

Answer 39

Changing a product or process that already exists

Question 40

Creative destruction

Answer 40

the process of economic change that results from the introduction of new technologies or products that render existing ones obsolete