Exam code: 0455 & 0987
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Define competitive market.
A competitive market is a market structure where there are many buyers and sellers trading similar or identical products, and no single buyer or seller can influence the market price.
What does it mean for firms in a competitive market to be price takers?
Firms are price takers because they cannot influence the market price and must accept the price set by supply and demand.
In a competitive market, there are many sellers because it is easy to set up businesses, often requiring or specialist knowledge.
In a competitive market, there are many sellers because it is easy to set up businesses, often requiring low capital or specialist knowledge.
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Define competitive market.
A competitive market is a market structure where there are many buyers and sellers trading similar or identical products, and no single buyer or seller can influence the market price.
What does it mean for firms in a competitive market to be price takers?
Firms are price takers because they cannot influence the market price and must accept the price set by supply and demand.
In a competitive market, there are many sellers because it is easy to set up businesses, often requiring or specialist knowledge.
In a competitive market, there are many sellers because it is easy to set up businesses, often requiring low capital or specialist knowledge.
What effect does perfect knowledge of prices have in a competitive market?
Perfect knowledge of prices means that if one seller lowers their price, all buyers know about it, ensuring that no firm can charge more than the market price.
Homogeneous products mean that goods sold by competing firms are and indistinguishable from each other.
Homogeneous products mean that goods sold by competing firms are identical and indistinguishable from each other.
List two advantages of competitive markets for consumers.
Consumers benefit from lower prices and better quality in competitive markets.
True or False?
Competitive markets often have barriers to entry that restrict new firms from joining.
False.
Competitive markets have no barriers to entry or exit, making it easy for new firms to join or leave the market.
A monopoly is a market structure in which one firm the market and has significant market power.
A monopoly is a market structure in which one firm dominates the market and has significant market power.
What determines whether a firm is in a competitive or monopoly market?
The characteristics of the market structure—such as the number of buyers and sellers, product type, price setting, and entry barriers—determine if a firm is in a competitive or monopoly market.
Define market structure.
A market structure refers to the conditions and characteristics of a market, including the number of firms, nature of products, and level of competition.
Define monopoly.
A monopoly is a market structure where there is a single seller with unique products, no substitutes, and complete market power.
True or False?
A monopoly can set prices and control output in its market.
True.
A monopoly has the power to set prices and control output because there are no close competitors.
What is meant by barriers to entry in a monopoly market?
Barriers to entry are obstacles that prevent new firms from entering the industry, helping the monopoly maintain its market power.
How do high barriers to entry allow a monopoly to maximise profit in the long run?
High barriers to entry prevent competitors from entering the market, so the monopoly can maintain abnormal profits in the long run.
Define price discrimination in the context of monopoly.
Price discrimination is when a monopoly charges consumers different prices for the same product based on their willingness to pay or price elasticity of demand.
What is one possible advantage of monopoly power for consumers?
A possible advantage is that large profits can fund product innovation, resulting in better quality products.
Monopolies can lead to prices for consumers and a of choice.
Monopolies can lead to higher prices for consumers and a lack of choice.