Market structures

Question 1

6 charicteristics of a perfectly competative market

Answer 1

1. Many buyers with no influence on price
2. Firms and custmers have perfect knowledge
3. Products are homogenous
4. No barriers to entry or exit
5. Perfect mobility in all factors of production
6. All firms are profit maximisers

Question 2

one example of a perfectly competitive

Answer 2

Agricultural industry

Question 3

What does the diagram look like for a perfectally competative market?

Answer 3

Question 4

What does this Diagram show?

Answer 4

Short run equlibrium in perfect competitoin

Question 5

What are the three short run characteristics with perfect compotition?

Answer 5

1. Fims can make abnormal profits
2. The firms are allocativly efficient (P=MC)
3. Firms are not productivly efficenient

Question 6

What does the Long run diagram for perfect competition look like?

Answer 6

Question 7

3 charicteristics of perfect competition in the Long run?

Answer 7

1. Firms can only make Normal profit.
2. Frims are allocativly effcient.
3. Firms are productivly and technically efficent.

Question 8

2 Market charicteristics of a monopoly market?

Answer 8

1. One firm in the market
2. High barriers to entry and exit

Question 9

What does the demand curve look like for a monopoly market?

Answer 9

Question 10

Is there a differance between shortrun and long run equilbrum for a monopoly?

Answer 10

No

Question 11

What does the diagram look like for a Monopoly?

Answer 11

Question 12

3 charicteristics of monoplies?

Answer 12

1. Not allocatively efficent Price does not = MC
2. Not productivly efficent
3. Abnormal profits made in both the long and short run

Question 13

Examples of a natural monoply and reasons why they occure?

Answer 13

Railways, electricity and gas

they occure as compotion would be wastefull

Question 14

3 problems with monpolies?

Answer 14

1. Higher price, lower quality and choice due to monoplies profit maximising (MC=MR)
2. Inefficent use of resources due to no compotition
3. Price descrimination

Question 15

3 Benifitis of monoplolies?

Answer 15

1. EOS so lower price for consumers
2. Increased investemetn form supernormal profits
3. Avoids wasteful compotetion

Question 16

Define monoplolistic compoetition?

Answer 16

Many sellers each selling slightly different product

Question 17

4 Market characteristics of Monoplolistic competition?

Answer 17

1. Many firms in the market
2. products are differentiated by branding or advertising
3. Firms have a small degree of monoploy power and independant decisons from other firms
4. Barriers to entry and exit are low

Question 18

Eamples of a monoplistic market?

Answer 18

1. Haidressers
2. Bakeries
3. News agents

Question 19

What does the short run equlibrum look like for monoplistic competition?

Answer 19

Question 20

3 charicteristics of monoplistic competition in the short run?

Answer 20

1. Firms can make abnormal profits
2. Firs are not allocativly effcient P does not =MC
3. Firms are not productivly effcient

Question 21

How does the Long run diagram differ from the Short run diagram of monoplistic competition

Answer 21

AR=D moves to the Left only normal profit is made due to firms entering the market due to low barriers to entry.

Question 22

From the digram what are the 3 charicteristics of long run monopolistic competition?

Answer 22

1. Firms are not allocativly effecient P does not =MC
2. Firms are not productivly effcient
3. Firms only are making normal profit AR=AC

Question 23

What are the 6 market charicteristics of an oligopoly

Answer 23

1. High market concentration ratio
2. Decison making is interdependant
3. high barriers to entry and exit
4. High level of non-price competion
5. collusion is commen
6. Price leadership

Question 24

Explain the Kinked demand curve?

Answer 24

1. Firms fear a rais in price as other firms will lower price to P1.
2. Consumers will then switch to these now comparable cheeper firms.
3. Firms also fear a reduction in prices due to other firms following suit.
4. This then leads to an overall lowering of price due to the interdependance
5. The graph is elastic above PE but inelastic below.

Question 25

Define overt colusion?

Answer 25

Open colusion of price ficing and output

Question 26

What is Tacit collusion?

Answer 26

Colusion that is done in an unspoken way

Question 27

3 reasons why collusion is high in oligopolies

Answer 27

1. High market concentration ratio- easy due to small number of firms. 2. High Barriers to Entry 3. Collusion is hard to prove often due to lack of evidence

Question 28

In game therory what does the dominent stratagy?

Answer 28

The best strategy for that firm irrespective to what other other firms do.

Question 29

In game theroy what is meant by the maximin?

Answer 29

When a firm maximises its minimum gains

Question 30

What is the maximax in game theory?

Answer 30

Firms maximises its maximum gains

Question 31

5 Charicteristics of the structure a contestable market

Answer 31

1. One or many firms 2. Barriers to entry and exit are low 3. Fims compete 4. Only normal profits made in the Long run 5. Hit and run tactics due to the low barriers to entry and exit,

Question 32

5 ways of assessing market contestablitlity

Answer 32

1. Size of entry and exit cost: low ones indicate a highly contestable market. 2. New entrats into the market: sugests that it is contestable. 3. Low Profitability: strong compotetion so contestable market. 4. Abesence of non competative practise

Question 33

Examples of a contestable market?

Answer 33

Banking, music and travle agents

Question 34

Define a monopsony

Answer 34

One buyer many suppliers

Question 35

1 Example of a monopsony?

Answer 35

Supermarkets such as Tesco

Question 36

3 Effects of being a monopsonist on the firm ?

Answer 36

Increased profits: through forcing suppliers to lower their prices. Increased rewads for Shareholders: result from more profit is more divendends. Increased investment.

Question 37

3 Effects of monopsonies on suppliers ?

Answer 37

1. Lower profits: reduced bargaining powers. 2. Firms exit the industry. 3. Unemployment: As firms leave the industry

Question 38

2 Effects on consumers of a monopsony?

Answer 38

1. Lower prices due to negotaitions with suppliers 2. Reduced choice: due to less suppliers, fewer products so EOS