A level Microeconomics > Market Structures > Flashcards

Market Structures Flashcards

(92 cards)

Study These Flashcards
1
Q

Define a Market

A

A medium that allows buyers and sellers of a specific good or service to interact in order to facilitate an exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define Market Structure

A

The number and size of firms within a market for a particular good or service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is meant by perfect competition

A

A market structure that has a large number of buyers and sellers who have perfect information about the market, identical products and few, if any barriers to entry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is imperfect competition

A

Any market structure that is not perfect competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is meant by pure monopoly

A

When only one firm supplies the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Will AI raise or lower barriers to entry for firms attempting to enter the browser industry

A

Could raise barriers because AI without a subscription service is not profitable, and competing with firms with monopolistic power such as OpenAI would be challenging

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

How may AI change the web browser market

A

It may shift the internet from a free and easily accessible platform, to a subscription based platform, as AI is not very profitable.

May shift the web browser market to a more profitable market with less competition and restricted access for consumers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define Concentration Ratio

A

Concentration Ratio measures the combined market share of the largest firms in an industry, indicating the level of competition and market dominance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What does it mean if we say an industry has a 3 firm concentration ratio of 60%

A

The largest 3 firms in the industry together control 60% of total market sales or output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Give examples of industries with high concentration ratios

A

The smartphone industry

The web browser industry

Central Processing unit industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Give examples of industries with low concentration ratios

A

-Water bottle industry

-Laptop Case Industry

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is consumer surplus

A

The difference between what a consumer would be prepared to pay and the price they actually pay for the good or service

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is producer surplus

A

The difference between what a firm would be willing to accept for a good or service and what they actually receive

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the equation for total economic welfare

A

Consumer surplus + producer surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is profit satisficing

A

A level of profit below profit maximisation that satisfies the needs of the owners or managers of an organisation e.g. working less hours to enjoy more leisure time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Objectives of firms

A

Profit Maximisation

Profit Satisficing

Sales Maximisation and increasing market share

Revenue Maximisation

Survival

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is meant by profit maximisation

A

When a firm seeks to make the largest positive difference between total revenue and total costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What does making large profits enable firms to do

A

-reinvest funds into developing new products that lead to them to gain more customers

-pay out higher returns to shareholders, which may encourage more people to buy shares in the company or help boost the share price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is meant by ‘Divorce of ownership from control’

A

The separation that exists between owners of the firm (shareholders) and directors in large public limited companions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What may the separation of ownership from control lead to

A

Conflicting objectives, with the directors persuing their own objectives; profit maximisation may not be their top priority, and for shareholders in a public company this is usually their top priority.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what may the objectives of directors be

A

Growth maximisation - to boost the profile and CV of senior managers

Sales revenue maximisation - executive pay and bonuses may be linked to annual sales revenue

Satisficing - firms are more able to target a satisfactory, suboptimal level of profit rather than a maximised one

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What does satisficing mean

A

Making do with a satisfactory, suboptimal level of profit below profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is sales maximisation

A

Sales maximisation occurs at the level of output where the sale of one more unit would not add to total revenue, this can help the firm benefit from economies of scale

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Survival (obj of firms)

A

A large proportion of new businesses fail in the first few years of operation

Therefore a key objective of a firm might simply be to survive the critical period before it establishes a customer base and sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Growth as an objective of firms
Once a firm has survived the critical first few years, its owners main objective is likely to grow the firm. This will involve increasing its output and scale of operations, expanding its productive base and the size of its workforce Taking advantage of economies of scale
26
Increasing Market Share as an objective of firms
Having the highest market share for a particular product can give a firm the benefits of monopoly power, although this may attract attention from the government, who may fear these firms will abuse their power
27
Define increasing market share
When a firm seeks to maximise its percentage share of a market in terms of sales value or number of units sold
28
Who is a stakeholder
Any individual or group with an interest in how a business is run
29
How can stakeholder objectives differ from financial objectives of firms
It is a more modern view of achieving financial and non-financial objectives, looking to satisfy the needs of a range of business stakeholders e.g. Firms may takes the view that looking after the needs of their of employees is at least as important as maximising profit
30
At what point does profit maximisation occur
At MC = MR
31
Define marginal cost
The cost of producing one more unit
32
Define marginal revenue
The revenue received from selling one more unit
33
Define marginal profit
The increase in profit when one more unit is sold
34
Where is marginal profit positive and negative on MC MR diagrams
it is positive where MR>MC and negative when MC> MR
35
Where does Revenue Maximisation occur
Where MR = 0 The firm always achieves revenue maximisation when PED = 1
36
Where does Sales Maximisation occur
At the point AR = AC
37
What do firms seek at profit maximisation
They seek to achieve the highest possible level of sales without making a loss
38
Where is the range of profit satisficing
On the AR curve between the point of profit max and sales max
39
Why does profit satisficing normally occur?
Because of the divorce of ownership and control, as shareholders wish to maximise profits but managers/directors might be self-interested and maximise their own personal benefits, such as grow the business
40
What is meant by ‘perfect’ in perfect competition
Doesn’t mean the best in this sense It means an extremely competitive market made up of a large number of small firms, with each firm being too small to influence the market price on its own
41
What is a price taker
A firm that is unable to influence the ruling market price and thus has to accept it
42
What are some assumptions of perfect competition
-There are few, if any barriers to entry to a market -Consumers and firms have complete, or perfect knowledge of all of the products supplied by firms, as well as their prices -Products are identical, or homogenous
43
What does homogeneous mean
Consisting of parts of all the same kind
44
Diagram to show perfect competition for one firm in the market
Supply and demand diagram, with two horizontal lines both representing demand
45
Diagram to show perfect competition in the whole market
Regular supply and demand diagram, with D and S curves labelled, market price and market supply, This diagram should also connect to the D and S diagram representing a singular firm
46
Why are the lines flat on a diagram representing perfect competition for a single firm
Because they are price takers, so the market equilibrium price must be the same for that firm.
47
How and what will other firms do if they notice another firm making supernormal profit in a perfect competitive market
They become aware of this as we have to assume they have perfect information, and they will enter the market easily due to the low
48
What effect will firms entering the market have on a perfectly competitive market
Causes a rightward shift of supply on the market diagram, meaning equilibrium price moves to P2 for firms, as output increases beyond Q1
49
What point will the increase in supply and firms entering the market in a perfectly competitive market stop occurring
Which only normal profit is made, meaning that only the most competitive firms survive in the market.
50
In the ______ ____ it is possible for a firm to be making a loss, normal profit or supernormal profit.
Short run
51
In the short run in a perfectly competitive market, AR is equal to what
AR = MR
52
Can firms make supernormal profit in the long run?
No, only normal profit
53
What will supernormal profit encourage firms to do, and how does this affect firms making losses (Long Run)
Supernormal profit will encourage firms to enter the industry, increasing market supply, whilst firms that are making profits will leave the market in the long run Therefore this leaves only firms making normal profit left in the market
54
In the long run, firms in perfect competition are both ________ and _____________ efficient
Productively and allocatively efficient
55
Advantages of perfect competition
Productive efficiency - highly competitive markets help to achieve production goods and services produced a minimum average cost, or that minimum inputs are used to produce maximum outputs Allocative efficiency - Highly competitive markets will lead to firms producing what consumers demand, if they do not, they will lose market share to firms that are producing the most desired products.
56
What is static efficiency
Efficiency measured at a point in time, comprising productive efficiency and allocative efficiency
57
Components of static efficiency
Productive and allocative efficiency
58
What is a pure monopoly
When there is a single supplier of a good or service that has 100% market share
59
Define monopoly power
The power of a firm in a market to act as a price maker
60
What is a price maker
A firm with the power to set the ruling market price
61
How can firms with monopoly power raise their prices and set the price of the market
Through restricting output
62
Define barriers to entry
Any feature of a market that makes it difficult or impossible for new firms to enter
63
Give an example of a natural barrier to entry
Soil and weather around Reims in Northern France are ideal for the production of grape varieties used to make champagne, therefore other sparkling wines wont have the same exclusivity
64
How is economies of scale a barrier to entry and give an example
Large firms can set the prices below those of any new entrant firms to the market, and still make supernormal profit Drives new firms out of the market E.g. Tesco will be able to get a cheaper price per unit of products = bulk buying
65
How is legal barriers deemed as a barrier to entry and give an example
Patents, Copyrights, trademarks give a single firm or individual the right to have a monopoly over a new product James Dyson holds many patents over his original designs of household appliances.
66
How is product differentiation deemed as a barrier to entry for new firms and give an example
Existing firms in market may have spent considerable sums of money over many years on advertising and branding to build a significant consumer loyalty and marketing profile e.g. Would be extremely difficult for a new firm to take market share from Coca-cola and Pepsi
67
Define product differentiation
Using advertising or product design to make a product seem different from those of competitors
68
How can sunk costs be a barrier to entry for a new firm trying to enter the market and give an example
Sunk costs are costs that cannot be recovered if a firm is unsuccessful in a market or has to exit, the threat of losing money acts as a deterrent to new firms considering entering a market e.g. An oil company may have to spend many millions of pounds on detecting resources of crude oil before it has to extract any
69
What is a concentrated market
A market dominated by a small number of firms, close to monopoly on the spectrum of competition
70
Disadvantages of monopoly
-Productive inefficiency Because monopolies do not have to be competitive to survive, there is little incentive to cut costs to a minimum -Allocative inefficiency - As monopolies do not have to produce the ‘best’ goods and services due to lack of competition, consumers may have little choice but to buy whatever is produced. -X-inefficiency -Diseconomies of scale - problems with control or communication
71
When does productive efficiency occur
When firms produce at minimum average total cost i.e. when minimum inputs are used to produce maximum outputs
72
When does allocative efficiency occur
When firms produce products that consumers value most highly, in the right quantity
73
What is X-inefficiency
The lack of willingness of firms with monopoly power to control their costs of production
74
Advantages of monopoly
-Economies of scale : Managerial, Marketing, Technical, Financial -Innovation
75
What is innovation
New products and production processes that are developed into marketable goods or services
76
How can innovation be an advantage of monopoly power
Since firms in concentrated markets make supernormal profit, there is arguably more funding in R&D, leading to innovation and better-quality products. Beneficial for industries such as pharmaceutical firms, as if they could not make supernormal profit, this could cause people’s quality of life to suffer due to a lack of medicines and vaccines.
77
What is a natural monopoly
A market where a single firm can benefit from continuous economies of scale e.g. National Grid Examples often used are the utilities markets, such as household gas, electricity and water
78
What is price discrimination
Where firms with monopoly power charge different groups of consumers different prices for the same product
79
Conditions necessary for price discrimination
-Firms must have a degree of monopoly power -different sub-markets of consumers with different elasticities of demand -No ‘ seepage’ between markets - those consumers being charged the higher price must not be able to access the cheaper prices.
80
What does price discrimination allow firms to do
Increase producer surplus at the expense of consumer surplus
81
Examples of price discrimination
Peak/Off-peak train tickets Student discounts at the cinema Child tickets
82
Example of monopolistic competition
Shoe repairs and key makers Taxi and minibus companies Sandwich bars and coffee shops Hairdressing salons Dry cleaners and lauderettes Bars and nightclubs Reigate restuarants
83
When does monopolistic competition exist
When there are a large number of firms selling differentiated products, this leads to a small degree of monopoly power as each firm offers something different to the others
84
BtE in monopolistic competition
Barriers to entry are very low, therefore it is easier to enter the market creating strong competition
85
Where is monopolistic competition name derived from
The mix between monopoly power of firms and strong competition
86
How may firms try and brand their product
Through the building up of a reputation, aka brand loyalty.
87
Are monopolistic competitive firms price takers or makers
Price takers as no firm is large enough to be a price marker
88
Information available to monopolistic competitive firms
More knowledge available to firms and consumers than in other types of imperfect markets
89
At what point on SR Monopolistic competition diagram do firms sit
At profit maximisation, MC=MR
90
Explanation for LR monopolistic competition diagram
Supernormal profits attract new firms into the market These will produce differentiated products which will reduce demand for incumbent firms This impacts PED for firm as more substitutes available, making incumbent firm’s more elastic.
91
Non-price competition Monopolistic competition
Advertising and product differentiation are important in MC Firms try to establish brand loyalty and repeat customer by making the customer aware of the product and persuading them through advertising Invest in new product development on a smaller scale than oligopolistic markets but will try to make their products stand out in a highly competitive market Often niche markets as the EoS that lead to the creation of highly concentrated markets do not exist in monopolistic competition
92
Monopolistic competition efficiency compared to other market structures
MC leads to greater efficiency than would occur in monopoly but less than that of perfect competition Productive inefficiency occurs as firms do not operate at the lowest point on their AC curve in the long-run Dynamic efficiency can occur as firms are continuously developing new products
A level Microeconomics
flashcards
Decks in class (17)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions