CXC - Caribbean Examinations Council Economics: Market Structures Flashcards
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What is the main reason monopolistic competition leads to excess capacity in the long run?
Answer: Firms produce below minimum average cost because demand curves slope downward
In monopolistic competition, the downward-sloping demand curve means firms operate below the minimum average cost, resulting in excess capacity.
Which market structure best describes the airline industry in the Caribbean?
Answer: Oligopoly
The Caribbean airline industry is dominated by a small number of large carriers, making it an oligopoly characterized by strategic interdependence.
What is allocative efficiency in a market?
Answer: Producing the quantity where price equals marginal cost
Allocative efficiency is achieved when resources are distributed so that price equals marginal cost, meaning goods are produced at the value consumers place on them.
Barriers to entry in a monopoly market include all of the following EXCEPT:
Answer: Many small competing firms
Having many small competing firms is a feature of perfect competition, not a barrier to entry that protects a monopoly.
When firms in an oligopoly secretly agree to fix prices, this is known as:
Answer: Collusion
Collusion occurs when oligopolistic firms secretly cooperate to set prices or output levels, reducing competition to maximize joint profits.
What is consumer surplus?
Answer: The difference between what consumers are willing to pay and what they actually pay
Consumer surplus is the economic benefit consumers receive when they pay less for a good than the maximum they would have been willing to pay.