Market Structures and Economic Concepts

Flashcards about market structures and economics concepts

What are the characteristics of a perfectly competitive market?

No product differentiation (homogenous products), intense competition, price takers, low barriers to entry and exit, free from government regulations, perfect knowledge of the market, consumers behaving rationally, and consumer sovereignty.

What determines prices in a market according to the price system?

The interaction between supply and demand.

Define 'Relative Price'.

The price of a good or service compared to the price of another good or service.

What does the law of demand state?

The quantity of a particular good or service that buyers are prepared to purchase varies inversely with the change in price.

What causes a movement along the demand curve?

A change in price of the product.

Define expansion in relation to the demand curve.

As the price decreases, there is an expansion in the quantity demanded, causing a movement downwards along the demand curve.

What causes a shift of the demand curve?

Non-price demand factors that cause an increase or decrease in demand.

How does an increase in disposable income affect the demand curve?

If disposable income increases, households have more money to spend which leads to demand increasing, shifting the demand curve to the right.

How do changes in consumer confidence affect the demand curve?

When consumer confidence is trending upwards, spending and consumption increase, thus demand for products increases, shifting the demand curve to the right.

What are substitute goods?

Alternative goods or services that have the same function or are valued equally as the product.

What are complementary products?

Goods or services that are often purchased to be used in conjunction with the product.

How do suppliers behave in relation to price?

Suppliers are rational and will aim to maximise their profits by moving towards markets that have higher prices to increase their profit.

What causes a movement along the supply curve?

Movement along the supply curve is caused by increase or decrease in the price of the good or services.

What factors cause a shift in the supply curve?

Factors other than price that may increase or decrease supply for a good or service (e.g., cost of production, government action, technological change, climatic conditions, productivity growth).

What is the result of a price set below the equilibrium?

A shortage with a lower quantity supplied and a higher quantity demanded.

What is the result of a price set above the equilibrium?

A surplus with a higher quantity supplied and a lower quantity demanded.

Define 'Market'.

A place where buyers and sellers come together to negotiate an agreeable or equilibrium price for a particular good or service.

What defines 'Market Power'?

The ability of a business to set or control the market price at which it sells its good or service.

What is 'Market Structure'?

The type of competition and level of power found in different markets.

Describe Monopolistic Competition.

Moderate number of sellers (similar but not identical), quite strong competition, increasing product/brand differentiation, quite good market knowledge, few to moderate barriers to entry.

Describe Oligopoly.

Relatively few but large sellers (control the industry with potential for collusion and abuse of power), product/brand differentiation are quite important ways of selling, and fairly difficult entry and exit due to high start-up costs.

Describe Monopoly.

One seller controls industry output with no close substitute product, no competition as no rival sellers, product differentiation is unimportant, difficult entry and exit due to high start-up costs.

What is 'Elasticity'?

The concept that describes the degree of responsiveness of the quantity demanded or supplied, given a change in a product's price.

Why is market structure important?

Strong competition results in lower prices, better quality goods, superior service for consumers, greater efficiency in allocating scarce resources, higher levels of production and national output, and better material living standards.