CHAPTER 7: Market Structures

 Perfect Competition and the Transformation of Economics - Amazon.com
Perfect Competition and the Transformation of Economics

1. Perfect Competition- A market where there are many firms and they produce an competition identical product.

2. Characteristics of perfect competition
a) Firms cannot control prices.
b) Firms can enter and leave anytime from the market.
c) The consumers are not able to tell which firm the product comes from.

3. Merits of perfect competition
a) The perfectly competitive firm can enjoys efficiently allocation of resources.
b) The firm cannot exploit the consumer and the producers cannot raise prices.
c) Producers do not have to spend money on advertising or sales promotion because all firms produce identical products.

4. Demerits of perfect competition
a) No research & development since the products are homogeneous. b) Perfect competition works best in equilibrium conditions.

5. Monopoly- Enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.

6. Monopolist- A person who monopolizes the means of producing or selling something.

7. Characteristics of monopoly
a) There is only one single seller and no competition.
b) Monopolist would adjust the price of the product.
c) New firms cannot enter into the industry.
d) The product does not have close substitute.

8. Barriers to entry- The restriction imposed by the existing firms in the industry to block the entry of the rival firms.
a) The monopolist will lower down the prices so that the rival firm will make a loss if it also sells at the same prices.
b) The rights of the producers are protected through legislation.
c) Attracting the staff of the rival firm with high salaries.
d) Government intervention
e) Government imposed certain regulations.
f) Monopolist controls the marketing channel.

9. Merits of monopoly
a) Monopolist can afford to pay for the services of these professionals. The aim is to increase the productivity and efficiency of the firm.
b) Too many firms, wastage of resources will occur.
c) Firm can be economies of scale with lower costs.
d) The stability of the firm will be ensure.
e) The monopolist afford to purchase the latest machinery.
f) The firm can undertake research & development.
g) The monopolist will provide the facilities in the country. E.g.: Water supply & electricity.

10. Demerits of monopoly
a) The monopolist can earn excessive profits by charging high price for his goods & services.
b) They do not have to worry about competitors.
c) Consumers have to buy whatever goods & services produced by the monopolist.

Monopoly City Edition - Amazon.com
Monopoly City Edition

11. Natural monopoly- A situation where long-run average costs are lower if an industry is undermonopoly.

12. Ways to control monopoly
a) When the private firm gets too large or powerful, the government will take over & turn it into a natural monopoly.
b) The government can impose taxes on the monopoly.
c) The presence of profits, new rival firms will be attracted.
d) The government can fix a suitable maximum price for the product to prevent the monopoly from selling the product at high prices.
e) Direct government intervention through legislation.

13. Growth of firms
a) When two or more firms merged into one.
b) Number of competing firms deposit their shares with a groups of trustees to share of the total profits.
c) Holding company.
d) Trade association
e) Interlocking directorship- It comprises combination of firms.
f) Marketing board by the government.

14. Types of integration
a) Horizontal Integration- When firms in the same industry & join with the same stage of production.

15. Lateral Integration- When a firm expands into an unrelated industry.

16. Vertical Integration- When firm merges with another at a different stage of production.

17. Reasons Horizontal Integration
a) To benefit from economies of scale.
b) To reduce competition.

18. 2 types of Vertical Integration
a) Backwards V. I- When a firm buy over another which is operating at a stage of production towards the source of raw materials.
b) Forwards V. I- When the firms over another operating at a stage of production towards the market.

19. Reasons for Vertical Integration
a) Lower the costs and increase efficiency between stages of production.
b) Control of sources of supply.
c) Better access to market.
d) Increased barriers of entry.
e) Better market knowledge & improve research.

20. Reasons Lateral Integration
a) To increase profits in the long run.
b) To fully utilize assets or resources.

21. Localisation of firms
a) Natural advantages.
b) Availability of water sources.
c) Easier to construct building on flat areas.
d) Availability of raw materials.
e) Areas with the right climate.
f) Areas that are far from residential areas.

22. Man-made advantages
a) Enough supply of labour.
b) Save transportation costs.
c) No need to advertise.

Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics  - Amazon.com
Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics

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