Questions and Answers
Which of the following are considered the 4 Basic Market Structures? (Select all that apply)
What are the characteristics of Perfect Competition?
Many firms, standardized product, low entry and exit barriers, price takers, no non-price competition, assumes many buyers, example: agricultural goods.
What defines Monopolistic Competition?
Many firms, differentiated product, easy entry and exit barriers, some price control, lots of advertising, usually close substitutes, examples: retail trade, music, shoes.
What are the key characteristics of Oligopoly?
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What are the characteristics of Pure Monopoly?
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Study Notes
Basic Market Structures
- Categories: Perfect Competition, Monopolistic Competition, Oligopoly, Pure Monopoly.
Perfect Competition
- Characterized by many firms in the market.
- Products are standardized; consumers view them as identical.
- Low barriers to entry and exit, allowing easy market participation.
- Firms are price takers, having no influence over market prices.
- No emphasis on non-price competition; competition is based on price alone.
- Typically assumes a large number of buyers.
- Common example: Agricultural goods (e.g., wheat, corn).
Monopolistic Competition
- Comprises many firms offering products that are differentiated.
- Products are similar but not identical; close substitutes available.
- Easy entry and exit, fostering competitive market conditions.
- Some degree of price control; firms can slightly influence prices.
- Extensive use of advertising as a form of non-price competition.
- Industries often include retail trade, music, and footwear.
Oligopoly
- Market consists of a small number of firms, leading to interdependent actions.
- Firms may offer either standard or differentiated products.
- High barriers to entry, restricting new competitors.
- Limited price control exists; firms may engage in strategic behavior.
- Significant investment in advertising as a form of non-price competition.
- Usually involves products with close substitutes.
- Examples include the automobile industry, gasoline, appliances, and steel.
Pure Monopoly
- Dominated by a single firm with a substantial market share.
- May offer either standard or differentiated products, but uniqueness is key.
- Barriers to entry are extremely high, preventing competition.
- Firm has considerable control over market prices, acting as a price maker.
- Lacks non-price competition; minimal advertising except for public relations.
- Unique product with no close substitutes, ensuring monopolistic power.
- Typical example: Electric distribution companies.
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Description
Test your knowledge of the four basic market structures: Perfect Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly. This quiz utilizes flashcards to help you understand their definitions, characteristics, and examples clearly.
