Questions and Answers
What is market structure?
What is pure competition?
Pure competition is a theoretical market structure that requires three major conditions: very large numbers of buyers and sellers, identical products, and freedom of entry and exit.
Define industry.
An industry is a group of firms producing similar or identical products.
What characterizes perfect competition?
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What is nonprice competition?
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Describe oligopoly.
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What is collusion?
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Price-fixing is a legal practice.
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What is a monopoly?
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What does laissez-faire mean?
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Define natural monopoly.
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What is a geographic monopoly?
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What is a technological monopoly?
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What is a government monopoly?
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What is monopolistic competition?
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Define product differentiation.
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Study Notes
Market Structure Overview
- Market structure classifies the nature and degree of competition among firms within an industry.
- An industry consists of a group of firms that produce similar or identical products.
Pure Competition
- Pure competition is a theoretical model requiring:
- A very large number of buyers and sellers.
- Identical products.
- Freedom of entry and exit from the market.
Perfect Competition
- Perfect competition features:
- Many well-informed independent buyers and sellers.
- Exchange of identical products.
- Freedom of entry and exit, mirroring pure competition.
Nonprice Competition
- Nonprice competition focuses on product attributes like appearance, quality, or design instead of price.
Oligopoly
- Oligopoly is a market structure dominated by a few large sellers, giving them the power to influence industry prices.
- It represents a form of imperfect competition.
Collusion and Price-Fixing
- Collusion refers to illegal agreements among producers to manipulate prices, control output, or divide markets.
- Price-fixing is a specific type of collusion where firms agree to charge uniform prices for products.
Monopoly
- Monopoly exists when a single producer dominates the market, representing a form of imperfect competition.
Laissez-Faire Philosophy
- Laissez-faire advocates minimal government intervention in business activities.
Types of Monopolies
- Natural monopoly occurs when a single firm can produce at lower average costs for the entire market.
- Geographic monopoly arises when a firm holds monopoly power due to its specific location or market size.
- Technological monopoly is based on proprietary manufacturing methods or scientific advancements under the firm's control.
- Government monopoly is established and/or owned by governmental entities.
Monopolistic Competition
- Monopolistic competition retains all characteristics of pure competition, except for product differentiation, indicating that products are not identical.
Product Differentiation
- Product differentiation highlights real or perceived differences between competing products within the same industry, influencing consumer choice.
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Test your knowledge on different market structures and competition with these flashcards. Each card provides definitions and insights into concepts like pure competition and industry classification. Perfect for students of economics or business studies.