Competative and Concentrated Markets Definitions

  1. Market Structure The organisation of a market in terms of the number of firms in the market and the way they behave
  2. Price Taker A firm which passively accepts the ruling market price set by the conditions outside its control
  3. Price Maker A firm possessing the power to set the price within the market
  4. 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 desired at the market ruling price
    • - The inability of an individual buyer or seller to influence the market price
    • - A uniform or homogenous product
    • - No barriers to entry or exit in the long run
  5. Competitive Market A competitive market is one in which firms strive to outdo their rivals, but it does not necessarily meet all the conditions of perfect competition.
  6. Concentrated Market A market containing very few firms
  7. Pure Monopoly When there is only one firm in the market
  8. Monopoly Power The power of the firm to act as a price maker rather than a price taker
  9. Imperfect Competition Any market structure lying between the extremes of perfect competition and pure monopoly
  10. Profit Maximisation Occurs when a firms total revenue is the furthest above total cos of production
  11. Sales Maximisation Occurs when sales revenue is maximised
  12. Market Share Maximisation Occurs when a firm maximises its percentage share of the market in which i sells its product
  13. Entry Barrier Makes it difficult or impossible for new firms to enter the market
  14. Exit Barrier Makes it difficult or impossible for new firms to leave the market
  15. Consumer Sovereignty Through exercising their spending power, consumers collectively determine what is produced in a market. Consumer sovereignty is strongest in a perfectly competitive market
  16. Producer Sovereignty Producers or firms in a market determine what is produced and what prices are charged
  17. Natural Monopoly The term has two meanings:
    • When a country or firm has complete control of a natural resource
    • When there is only one room in a market for one firm benefitting from economies of scale to the full
  18. Patent A strategic or man-made barrier to entry caused by govt 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 goods.
  19. Natural Barrier to Entry A barrier to market entry which is not man-made
  20. Artificial Barrier to Entry A barrier to market entry which is man-made
  21. Informative Advertising Provides consumers and producers with useful inflation about goods or services
  22. Persuasive Advertising Attempts to persuade potential customers that a good or service possesses desirable characteristics that make it worth buying
  23. Saturation Advertising Through flooding the market with information and persuasion about a firm’s product. This can act as a man-made barrier to market entry because small forms cannot compete.
  24. Product Differentiation Making a product different through design, how it is made or through its functionality
  25. Quantity Setter A form chooses the quantity if a good to sell rather than the price. In monopoly, the market demand curve dictates the maximum price that can be charged if the firm is to successfully sell its chosen quantity.
  26. 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 total output
  27. Oligopoly A market dominated by a few firms
  28. Resource Misallocation When resources are allocated in a way which does not maximise economic welfare
  29. Collusion Co-operation between forms, for example to fix price. Some forms of collusion may be in the public interest, for example, research and labour training schemes.
  30. Invention Creates new ideas for products and processes
  31. Innovation Converts the results of invention into marketable products or services
  32. Price Competition Reducing the price of a good or service to gains ales by making it more attractive to consumers.
  33. Limit Pricing Reducing the price of a good to just above the average cost to deter the entry of new firms into the market. Prices are set at levels which are likely to make it unprofitable for potential entrants who might consider coming into the market.
  34. Predatory Pricing Temporarily reducing the price of a good to below average cost to drive smaller firms or new entrants out of the market.
Card Set
Competative and Concentrated Markets Definitions
Competative and Concentrated Markets Definitions