Market Structures Flashcards

Flashcards created from lecture notes covering market structures, including Perfect Competition, Monopoly, Monopolistic Competition, Oligopoly, barriers to entry, and cartels.

How is market structure defined?

It is defined as the features that determine the behaviour and performance of firms in the industry.

What are the four main types of market structures?

Perfect Competition, Monopoly, Monopolistic competition, and Oligopoly.

What is Perfect Competition?

A market structure in which there are many sellers and many buyers, producing a homogenous product.

What does it mean for products to be homogenous in Perfect Competition?

It means each unit of the product is identical.

What is perfect knowledge in a perfect competition market?

It means buyers and sellers are aware of the product, its features, its price, and the other buyers and sellers.

Why is an individual firm in Perfect Competition considered a price-taker?

Because a firm's output is only a small part of the total output, so no firm can influence price and the individual firm has no market power.

What are perhaps the best examples of perfect competition in the real world?

Gas stations and the stock exchange.

What is a Monopoly?

It is a market structure in which there is only one seller and there are many buyers.

How does pricing affect the quantity sold by a monopolist?

The monopolist can only sell more at a lower price; if the price increases, less will be sold.

What are barriers to entry?

Anything that prevents new firms from entering and competing in an industry.

What are the four types of barriers to entry listed in the notes?

1) Government regulations, 2) Patents, 3) Large capital outlay, and 4) Ownership by the firm of a scarce factor of production.

What example is given for an ownership of a scarce factor of production barrier?

Angostura, trinidad, and tobago.

What is Monopolistic Competition?

A market structure in which there is competition amongst many firms, containing features of both perfect competition and a monopoly.

How are products characterized in Monopolistic Competition?

The product is similar yet differentiated through branding.

What examples are given for Monopolistic Competition?

Resturants, hair and beauty salons, and super market.

What is an Oligopoly?

A market structure in which there are few firms competing in the market.

What examples are given for homogeneous and differentiated products in an Oligopoly?

Petrol is given as an example of a homogeneous product, and detergents as an example of a differentiated product.

What is price rigidity in an oligopoly market?

Price rigidity occurs when prices remain at a certain level over a long period because firms tend to avoid price competition.

What is a price war?

It occurs when rival firms continuously reduce prices to undercut each other.

What is collusion?

Collusion occurs when there are price and quantity agreements with other firms.

What is a cartel?

A group of sellers who make agreements about the price and the quantity to be sold on the market.

Which market structure is described as a typical market structure in the real world?

An Oligopoly is a typical market structure in the real world, unlike perfect market structure and monopoly.