Topic 5 - Competitive and concentrated markets Flashcards
(23 cards)
How are market structure distinguished
The number of firms in the market
The degree of product differentiation
Ease of entry into the market
Name some potential barriers to entry
Economies of scale
Brand loyalty
Capital requirements
Legal or regulatory requirements
What are the characteristics of competitive markets
Many buyers and seller which are relatively small and act independently
Sellers are price takers
Low barriers to entry and exit from the market
Homogeneous goods are sold
Firms are short-run profit maximisers
Factors of production are extremely mobile
Participants have perfect information
Define price takers
Firms must accept the prevailing market prices in this market as they do not have the market share to change the price significantly without losing customers
Define homogeneous goods
All the goods are very similar or the same so it is difficult to build brand loyalty
Explain what is meant by short-run profit maximisers
This is when the firm’s revenue falls below break-even and therefore the firm reduces output in order to reduce costs
Impact of competitive markets on consumers
Benefits consumers through lower prices and increased choice and possibly improving product quality.
But may pass on advertising expenses to consumers
Impact of competitive markets on government
Encourages competitive markets as it leads to increased satisfaction for consumers. But firms will experience lower profits so there might be a lower tax revenue for the government
Impact of competitive markets for workers
May experience lower wages because firms are generating less profit
Define oligopoly
Where a small number of firms dominate the market.
Technically it occurs if the 5 largest firms control at least 50% of the market share
Define monopoly
Where a single firm dominates the market. They are known as legal or pure.
Characteristics of oligopolies
Relatively high barriers to entry and exit from the market
High concentration ratio
Interdependence of firms
Production differentiation or non-price competition
Firms may try to collude or operate cartels which is illegal
Imperfect information
Define pure monopoly
Where there is a single firm in the market with no close substitutes
Define legal monopoly
Where a firm holds over 25% of the market share
Characteristics of a monopoly
Maximisation of profit
Product differentiation is high
Sole seller in a market
Very high barriers to entry
Price makers
Price discrimination
What type of market is the labour market
A factor market
How are wages determined
Through demand and supply of labour, at equilibrium
Define wage differentials
The differences in wages within different occupations
Reasons for wage differentials within occupations
Experience, qualifications, skill set
Region
Productivity
Discrimination
Reasons for wage differentials between occupations
Skills, training and qualifications required
Market profitability
Job popularity
Define gross pay
The pay given to an employee before taxes are deducted
Define net pay
The pay given to an employee after taxes are deducted
Name some taxes
Income tax
National Insurance
Pension
Student loan
