CXC CXC - Caribbean Examinations Council Economics: Market Structures 1 — Questions and Answers
Question 1: Which market structure is characterized by a single seller controlling the entire supply of a good or service with no close substitutes?
- Perfect competition
- Monopoly (Correct answer)
- Oligopoly
- Monopolistic competition
Correct answer: Monopoly
A monopoly exists when one firm dominates the entire market with no close substitutes for its product.
Question 2: In a perfectly competitive market, what happens to a firm's economic profit in the long run?
- It increases indefinitely
- It remains constant
- It is driven to zero by new entrants (Correct answer)
- It becomes negative
Correct answer: It is driven to zero by new entrants
In perfect competition, the absence of barriers to entry allows new firms to enter when profits exist, driving economic profit to zero in the long run.
Question 3: Which characteristic distinguishes an oligopoly from other market structures?
- Many sellers with identical products
- A single dominant firm
- A few large firms with significant market power (Correct answer)
- Free entry and exit for all firms
Correct answer: A few large firms with significant market power
An oligopoly is defined by a small number of large firms that are mutually interdependent and together control most of the market.
Question 4: What is a natural monopoly?
- A monopoly formed through government regulation
- A market where one firm can supply the entire market more cheaply than multiple firms (Correct answer)
- A monopoly based on owning a natural resource
- A market with naturally identical products
Correct answer: A market where one firm can supply the entire market more cheaply than multiple firms
A natural monopoly occurs when one firm can produce the total market output at a lower average cost than two or more firms due to economies of scale.
Question 5: Which of the following is an example of non-price competition?
- Lowering the price below competitors
- Offering quantity discounts
- Advertising and product differentiation (Correct answer)
- Reducing production costs
Correct answer: Advertising and product differentiation
Non-price competition involves firms competing through advertising, branding, and product features rather than by lowering prices.
Question 6: What does the term 'price maker' describe in market structures?
- A firm that accepts the market price as given
- A firm with the power to set its own price (Correct answer)
- A government agency that controls prices
- A consumer who influences market prices
Correct answer: A firm with the power to set its own price
A price maker is a firm — typically a monopoly or dominant oligopolist — that has enough market power to set its own price rather than accepting the market price.
CXC CXC - Caribbean Examinations Council Economics: Market Structures 1
Which market structure is characterized by a single seller controlling the entire supply of a good or service with no close substitutes?