Theme 4

Question 1

Market structure

Answer 1

Number of firms within an industry and the way in which those businesses behave .

Question 2

Concentration ratio (CR)

Answer 2

Number of firms that dominate the market​.

Question 3

Perfect competition

Answer 3

• Large number of small producers
• No barriers to entry
• Demand is perfectly elastic

Question 4

Monopoly

Answer 4

One firm dominates the market
- Price leaders
- Can charge high prices but restricted
- Entry barriers, economies of scale
- Use promotion

Question 5

Duopoly

Answer 5

Two firm dominates the market
- Price leaders
- Can charge high prices but restricted
- Entry barriers, economies of scale
- Non price competition
- Collusion

Question 6

Oligopoly

Answer 6

Few firms dominates the market
- Price leaders
- Can charge high prices but restricted
- Entry barriers, advertisement
- Non price competition
- Collusion
- Branding
- Interdependence of firms

Question 7

Monopolistic competition​

Answer 7

Large number of firms in the market selling differentiated products.
- Low entry barriers
- Small degree of monopoly

Question 8

Contestable markets​

Answer 8

Market structure that is competitive because of a lack of barriers to entry.
- Freedom to enter or exit the market​
- No sunk costs ​
- Perfect knowledge

Question 9

Dynamic efficiency

Answer 9

Firms innovate production processes in order to lower AC.

Question 10

Barriers to entry

Answer 10

Any factors that stop a firm from entering a market.

Question 11

Barriers to entry examples

Answer 11

• Product differentiation​
• Branding​
• Start-up costs​
• Intellectual property rights​
• R&D and technology change
• Economies of scale
• Unfair competition

Question 12

N-firm concentration ratio (CR)

Answer 12

Measurement of the market share of the n firms that dominate the market​.

Question 13

Tacit agreement

Answer 13

Can occur in oligopolies where firms agree to manipulate the market in some form.

Question 14

Price wars

Answer 14

Occur when a firm lowers price in order to increase market share.

Question 15

Limit-pricing

Answer 15

Occurs when a firm operates below the profit maximising output of MC = MR.

Question 16

First degree price discrimination

Answer 16

Firm is able to charge the maximum possible price to individual consumers​.

Question 17

Second degree price discrimination

Answer 17

Occurs when different prices are charged based on the quantity demanded.

Question 18

Third degree price discrimination

Answer 18

Occurs when the firm identifies groups of consumers with similar characteristics​.

Question 19

Profit maximisation

Answer 19

Occurs where MR = MC.

Question 20

Revenue maximisation

Answer 20

Occurs where MR = 0.

Question 21

Sales maximisation

Answer 21

Occurs where AR = AC.

Question 22

Economic efficiency

Answer 22

Occurs where we have allocative and productive efficiency at the same time​.

Question 23

Efficiency is influenced by

Answer 23

• Increased use of technology
• Investment in human capital
• Improved quality management

Question 24

The minimum efficient scale (MES)

Answer 24

That scale of production where the long run average cost curve is at its lowest point​.

Question 25

Market orientation

Answer 25

Outward looking approach to product development where focus is on what products consumer wants.

Question 26

Collusion

Answer 26

When firms in an oligopolistic market agree to act as one firm in order to benefit from elements of monopoly.​

Question 27

Cartel

Answer 27

Formal agreement between firms to collude in the operation of the market​.

Question 28

Monopsony

Answer 28

When there is only one buyer in the market​.

Question 29

Competition policy

Answer 29

Seeks to improve the competitive nature of markets.

Question 30

Anti-competitive practices

Answer 30

Those that reduce competition in markets​.

Question 31

Privatisation

Answer 31

Transfer of assets from the government to privately owned businesses.​

Question 32

Natural monopoly

Answer 32

Occurs when there is only one producer in an industry.

Question 33

Regulation

Answer 33

Creation of rules and sanctions within an industry in order to change the behaviour of firms​.

Question 34

Merit/Demerit goods

Answer 34

Merit - Deemed to be beneficial for society, under-provided by the market. ​ Demerit - Deemed to be bad for society, over provided by the market

Question 35

Factor immobility​

Answer 35

Occurs because it is difficult for factors of production to be put to alternative uses​ - Labor immobility - Capital immobility - Land immobility

Question 36

Information failure

Answer 36

Type of market failure where consumers or producers - Do not have perfect knowledge​ - Have asymmetric knowledge​

Question 37

Ways in which governments intervene to correct market failure ​

Answer 37

- Provision of merit goods​ - Indirect taxation of demerit goods​ - Tradable pollution permits​ - Provision of information​ - Legislation​ - Regulation

Question 38

Pollution permits

Answer 38

Allow firms to produce a legal level of pollution every year​.

Question 39

Multiplier effect

Answer 39

Initial injection into the economy causes larger final increase in the level of real national output.

Question 40

Marginal tax

Answer 40

Percentage of tax paid on an additional £1 of earnings​.

Question 41

Supply side policy options​ to increase incentives

Answer 41

- Cutting Income Tax​ - Cutting Corporation Tax​ - Modification of Welfare Payments​ - Investment Grants​ - Subsidies

Question 42

Supply-side policy options​ to promote competition

Answer 42

- Deregulation​ - Privatisation​

Question 43

Supply-side policy options​ to improve skills, quality and quantity of the labour force​

Answer 43

- Training and Education​ - Immigration

Question 44

Roles of the financial market

Answer 44

- To mobilise savings for lending ​to firms and individuals - Lend to business - Lend to individuals​ - Simplify exchange of goods and services​ - Assess creditor risk​ - Provide forward markets - Provide a market for equities​

Question 45

Forward market

Answer 45

Allows economic agents to set the price of an asset today for delivery in the future​.

Question 46

Main functions of a central bank​

Answer 46

- Maintain financial stability in the monetary system: banker to the banks​ - Help the government maintain macroeconomic stability​

Question 47

Contributing factors to 2008 financial crisis

Answer 47

- Sub-prime mortgages​ - Moral hazard (too big to fail)​ - Collapse of lending to businesses​ - Speculation and market bubbles​ - Role of organisational culture

Question 48

Organisational culture

Answer 48

Values and standards shared by people within an organisation​.