Market Structures (Edexcel IGCSE Economics): Flashcards
Exam code: 4EC1
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- FrontCompetitive Markets
Define competition.
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Cards in this collection (53)
Define competition.
Competition refers to the number of firms that sell similar products in the same industry.
Define a competitive market.
A competitive market is one with many firms selling similar products, forcing them to work hard to keep and attract customers.
Give one disadvantage of competitive markets for consumers.
One disadvantage is too much choice, which can overwhelm consumers so they stick to products they already know.
Why does competition tend to lower prices for consumers?
Competition tends to lower prices because firms cut prices in an attempt to gain market share.
Give two advantages of competitive markets for firms.
Two advantages of competitive markets for firms are greater efficiency (lower costs of production) and increased innovation to attract new customers.
How can competition improve the standard of living in an economy?
Competition improves the standard of living because innovation and improved goods and services become available in markets over time.
Give one disadvantage of competitive markets for workers.
A disadvantage for workers is that low profit margins may result in low wages and poor working environments.
True or False?
Too much competition can reduce profit levels and stifle innovation.
True.
Very low profit margins caused by excessive competition can stifle innovation and economic progress.
True or False?
Competition always guarantees higher product quality for consumers.
False.
In a bid to lower prices, product quality may deteriorate as firms cut costs or use cheaper raw materials.
For consumers, more sellers in a competitive market means more .
For consumers, more sellers in a competitive market means more choice.
To keep their costs low in a competitive market, firms are likely to minimise .
To keep their costs low in a competitive market, firms are likely to minimise waste.
In a crowded market, firms continuously seek to improve the of their goods to become recognised.
In a crowded market, firms continuously seek to improve the quality of their goods to become recognised.
Define market capitalisation.
Market capitalisation is the market value of a company, calculated by multiplying the number of shares issued by the share price.
Define market share.
Market share is the percentage of total sales in an industry that is held by a particular firm.
Define a merger.
A merger is when two firms combine into a single business entity, which creates rapid growth.
Name three metrics used to measure the size of a firm.
Three metrics used to measure firm size are the number of employees, market share, and the size of profits (or market capitalisation).
How many employees does a firm generally have to be classed as large?
A firm is generally classed as large when it has more than 500 employees.
Give one advantage a small firm has over a large firm.
A small firm can offer highly customised goods and services and build personal relationships with customers, generating loyalty.
Why might a large firm be able to charge lower prices than a small firm?
A large firm can benefit from economies of scale that lower its cost per unit, and it may pass these savings on as lower prices.
How does growth allow a firm to spread risk?
Growth allows product diversification, so if one product fails others may still be successful, reducing risk.
Give one reason an entrepreneur might choose to keep their firm small.
An owner may keep a firm small because their aim is an acceptable quality of life or satisficing rather than profit maximisation.
True or False?
A firm that grows too large may experience diseconomies of scale.
True.
When a firm grows too large it may face difficulties coordinating departments and controlling quality, raising average costs.
True or False?
Small firms find it easier to access large bank loans than large firms.
False.
Small firms have fewer financial resources and less access to large loans; some cannot access any loans at all.
Larger firms can take advantage of economies of scale to lower their average .
Larger firms can take advantage of economies of scale to lower their average costs.
Firms may take over or merge with rivals because they desire stronger market and fewer competitors.
Firms may take over or merge with rivals because they desire stronger market power and fewer competitors.
Governments monitor merger activity to prevent a single firm gaining a significant market .
Governments monitor merger activity to prevent a single firm gaining a significant market share.
Define monopoly.
A monopoly is a market structure in which a single seller dominates the market.
Define price-maker.
A price-maker is a firm with complete market power that can set the price of its product rather than accept the market price.
Define barriers to entry.
Barriers to entry are obstacles, such as patents or high start-up costs, that prevent or deter competitors from entering a market.
What percentage of market share do many governments use to define a monopoly?
Many governments define a monopoly as any firm having more than 25% market share.
How can a monopoly's large profits benefit the products consumers receive?
A monopoly's large profits can be invested in research and development. This may lead to product innovation and better quality products for consumers.
Why are a monopoly's high profits not eroded in the long run?
A monopoly's high profits are not eroded because high barriers to entry prevent competitors from entering the industry.
Give one advantage of a monopoly for consumers.
A monopoly can achieve economies of scale, which lowers average cost and may lead to lower prices if savings are passed on.
Why might a monopoly lead to higher prices?
A monopoly may lead to higher prices because a lack of competition and no substitute goods allow the firm to raise prices.
True or False?
A monopolist sells a product that has close substitutes.
False.
A monopoly sells a unique product for which there are no substitute products.
True or False?
A lack of competition can reduce a monopoly's incentive to be cost efficient.
True.
With no competitive pressure, a monopoly has a reduced incentive to control costs and improve efficiency.
In a monopoly, a single seller has complete market .
In a monopoly, a single seller has complete market power.
A monopoly may limit supply in order to increase , leading to an inefficient allocation of resources.
A monopoly may limit supply in order to increase price, leading to an inefficient allocation of resources.
A monopoly may offer worse customer because the incentive to improve it is limited.
A monopoly may offer worse customer service because the incentive to improve it is limited.
Define oligopoly.
An oligopoly is a market structure where a small number of large firms dominate the industry.
Define concentration ratio.
A concentration ratio calculates the percentage of total market share served by a specific number of the largest firms.
Define interdependence in an oligopoly.
Interdependence means that oligopolists study and respond to each other's behaviour when making decisions.
Define a price war.
A price war occurs when competitors repeatedly lower prices to undercut each other, resulting in all firms achieving lower profits.
Define predatory pricing.
Predatory pricing is when a firm temporarily reduces its price, often below cost, to drive out an existing competitor, and is illegal.
Give an example of an industry in the UK that is an oligopoly.
The UK supermarket industry is an oligopoly, dominated by firms such as Tesco, Sainsbury's, Asda and Morrisons.
Why are exit barriers high in an oligopoly?
Exit barriers are high because of large sunk costs that firms cannot recoup if they leave the industry.
What is the most common form of competition used by oligopolists?
The most common form of competition used by oligopolists is non-price competition, focused on product differentiation.
How does limit pricing differ from predatory pricing?
Limit pricing temporarily lowers prices to prevent a new competitor from entering, whereas predatory pricing aims to drive out an existing rival.
Give one advantage of an oligopoly for consumers.
Consumers may benefit from lower prices, as large-scale operations create economies of scale that reduce average costs.
True or False?
Oligopolists have a strong incentive to collude in order to increase profits.
True.
With few competitors, oligopolists have a strong incentive to collude, as this can lead to greater profits.
True or False?
Products in an oligopoly are usually undifferentiated and identical.
False.
Products tend to be highly differentiated through branding, so consumers perceive them as different and become brand loyal.
Non-price competition in an oligopoly focuses on product to build brand loyalty.
Non-price competition in an oligopoly focuses on product differentiation to build brand loyalty.
High barriers to entry in an oligopoly can restrict the number of firms and result in low .
High barriers to entry in an oligopoly can restrict the number of firms and result in low innovation.
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