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  • Competitive and Concentrated Markets
    • Key Terms
      • Market Structure- The organisation of a market in terms of the number of firms in the market and the ways in which they behave
      • Price Taker- a firm which passively accept the ruling market price set by market conditions outside its control
      • Price Maker- A firm possessing the power to set the price within the market
      • Perfect competition- A hypothetical market where competition is at its greatest level
      • Competitive Market- one in which firms strive to outdo their rivals but doesn't necessarily meet all their conditions of perfect competition
      • Concentrated Market- A market containing only a few firms
      • Pure Monopoly- Only one firm in the market
      • Monopoly Power- The power of a firm to act as a price maker rather than price taker
      • Imperfect competition- Any market structure lying between the extremes of perfect competition and pure monopoly
      • Consumer sovereignty- Consumers collectively determine what is produced in a market through their spending power. exists in competitive markets
      • Producer sovereignty- Producers determine what is produced what is produced and what price is charged. exists in highly concentrated or monopoly markets
      • Productively inefficient- monopoly- producing over their costs
    • Features of a Market
      • Number of firms in the market
      • Market share of the largest firms
      • The nature of the production costs in the short and long term e.g the ability to exploit economies of scale
      • The extent of product differentiation
      • The price and cross elasticity of demand for different products
      • The number and the power of the buyers of the industry's main products
      • The turnover of customers- measure of how often customers switch suppliers
    • Perfect Competiton
      • Many small firms- each of whom produces a low percentage of market output and thus exercises no control over the ruling price
      • Many individuals buyers- none of whom has any control over the market price
      • Perfect Knowledge- consumers have readily available information about prices and products from competing suppliers
      • Homogenous product- all products are the same- perfect substitute ( oil and petrol)
      • Freedom of enterance to exit from the industry- No sunk costs- this means that long run profits will be normal as any super normal profits will be competed away
      • Readily available information- we assume all firms have equal access to technological improvements.
      • Perfect competition is actually non- existent in the real world
    • Price determination in a perfectly competitive market
      • Perfect competition have no influence over the market they are price takers
      • The price is determined by the interaction of the supply and demand curves in the industry
    • Why are profits likely to be lower in a competitive market?
      • In a highly competitive market they are normally very few entry and exit barriers
      • If high levels of profit is being made in the short run then this will send signals to other firms to enter the industry to reap some of the rewards
      • As there are no barriers to entry or barriers to exit they will do so until all the super normal level of profit are competed away
      • The invisible hand of the market acts as a mechanism for eliminating high profits through signals and incentives


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