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34 Cards in this Set
- Front
- Back
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Market structure |
The organisation of a market in terms of the number of firms in the market and the ways in which they behave |
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Price taker |
A firm which passively accepts the ruling market price set by market conditions outside its control |
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Price maker |
A firm possessing the power to set the price within the market |
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Perfect competition |
A market which displays the six conditions of: a large number of buyers and sellers; perfect market information; the ability to buy or sell as much as is desired at the ruling market price; the inability of an individual buyer or seller to influence the market price; a uniform of homogeneous product; and no barriers to entry or exit in the long run. |
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Competitive market |
One in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition |
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Concentrated market |
A market containing very few firms, in the extreme only one firm |
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Pure monopoly |
When there is only one firm in the market |
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Monopoly power |
The power of a firm to act as a price maker rather than a price taker |
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Imperfect competition |
Any market structure lying between the extremes of perfect competition and pure monopoly |
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Profit maximisation |
Occurs when a firm's total sales revenue is furthest above total cost of production |
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Sales maximisation |
Occurs when sales revenue is maximised |
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Market share maximisation |
Occurs when a firm maximises its percentage share of the market in which it sells its product |
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Entry barrier |
Makes it difficult or impossible for new firms to enter a market |
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Exit barrier |
Makes it difficult or impossible for firms to leave a market |
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Consumer sovereignty |
Through exercising their spending power, consumers collectively determine what is produced in a market. |
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Producer sovereignty |
Producers or firms in a market determine what is produced and what prices are charged. |
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Natural monopoly |
The term has two meanings, first when a firm or country has complete control of a natural resource, and second when there is only room in a market for one firm benefiting from economies of scale to the full. |
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Patent |
A strategic or man-made barrier to market entry caused by government legislation protecting the right of a firm to be the sole producer of a patented good, unless the firm grants royalties for other firms to produce the good. |
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Natural barrier to entry |
A barrier to market entry which in not man-made
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Artificial barrier to entry |
A barrier to market entry which is man-made
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Informative advertising |
Provides consumers and producers with useful information about goods or services.
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Persuasive advertising |
Attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying.
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Saturation advertising |
Through flooding the market with information and persuasion about a firm's product, this functions as a man-made barrier to market entry by making it difficult for smaller firms to compete. |
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Product differentiation |
Making a product different from other products through product design, the method of producing the product, or through its functionality. |
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Quantity setter |
A firm chooses the quantity of a good to sell, rather than its price. In monopoly, the market demand curve then dictates the maximum price that can be charged if the firm is to successfully sell its chosen quantity. |
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Concentration ratio |
A ratio which indicates the total market share of a number of leading firms in a market, or the output of these firms as a percentage of total market output.
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Oligopoly |
A market dominated by a few firms |
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Resource misallocation |
When resources are allocated in a way which does not maximise economic welfare.
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Collusion |
Co-operation between firms, for example to fix prices.
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Invention |
Creates new ideas for products or processes |
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Innovation |
Converts the results of invention into marketable products or services
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Price competition |
Reducing the price of a good or service to gain sales by making it more attractive for consumers. |
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Limit pricing |
Reducing the price of a good to just above average cost to deter the entry of new firms into the market. |
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Predatory pricing |
Temporarily reducing the price of a good to below average cost to drive smaller firms out of the market. |
