Unit 5 Economics Review

What are key characteristics of a purely competitive market?

• Many sellers, identical products, price takers

• Few sellers, differentiated products, price makers

• Single seller, unique product, high barriers to entry

• Many buyers, government regulation, fixed prices

Define “monopoly” and give one example.

• A single seller dominates the market; example: a local utility company

• A market with many sellers and buyers; example: a farmers' market

• A market where products are identical; example: wheat market

• A market with a few large firms; example: automobile industry

How do firms in monopolistic competition differentiate their products?

• Through branding, design, quality, or advertising

• By lowering prices below cost

• By merging with competitors

• By restricting output to increase prices

What is an oligopoly? Name an industry that fits this structure.

• Few large firms dominate the market (3-4 controlling 70%-80% of the market); example: automobile industry, breakfast cereal

• A single firm controls the entire market; example: local water supply

• Many small firms with no control over price; example: agriculture

• Firms sell identical products and have perfect information; example: stock market

Why is price-setting rare in pure competition?

• Too many buyers and sellers so market usually determines price

• Firms have complete control over prices

• There are only a few sellers in the market

• Government sets all the prices

Give an example of a monopolistic competition market.

• Clothing stores or fast-food chains

• Electricity distribution companies

• Wheat farming

• National postal service

Why do monopolies often face government regulation?

• To protect consumers from high prices and lack of choices

• To encourage monopolies to expand internationally

• To help monopolies increase their profits

• To reduce competition in the market

What makes oligopolistic firms interdependent?

• One firm’s actions affect the others’ pricing and production

• They operate in completely isolated markets

• They have no influence on market prices

• They always collude to set prices

What role does advertising play in monopolistic competition?

• It helps consumers distinguish between similar products

• It eliminates all competition in the market

• It reduces the number of firms in the industry

• It ensures all products are identical

What’s a disadvantage for consumers in a monopoly?

• Higher prices and fewer choices

• Increased competition and lower prices

• More product variety and better service

• Easier access to international markets