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Test Questions.

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  1. Answer the following questions on the text.
  2. Answer the following questions on the text.
  3. Answer the following questions on the text.
  4. Answer the following questions on the text.
  5. Answer the following questions on the text.
  6. Answer the questions in writing.
  7. Ex. 4. Answer the receptionist's questions.
1. A firm that supplies 100% of a market is known as:
A. an oligopoly
B. a sole trader
C. a monopoly
D. a duopoly
   
2. Which of the following is not a feature of an oligopolistic market?
A. a small number of firms supplying the market
B. heavy advertising of products
C. strong product brand images
D. price wars
3. Which of the following is an external cost caused by a decision to produce goods and services?
A. the cost of employing a contractor to clean the outside of a building due to airborne pollutants
B. the cost of hiring labour
C. the cost of employing a contractor to maintain the computer network in a firm
D. a fall in the profits of grain producers due to a poor harvest
   
4. The most likely explanation for the decision by a business owner to turn his sweetshop into a video film rental shop instead is:
A. consumer demand for video film rental is falling
B. consumer demand for confectionery is rising
C. consumer demand for video film rental is rising
D. consumer demand for all goods and services is falling
   
  Questions 5 – 7 share the following answer options:
A. market skimming
B. destruction pricing
C. penetration pricing
D. non-price competition
  Which of the above describe the following competitive practices?
5. A firm entering a market for the first time and setting price low to build sales.
6. A firm that invests heavily in advertising to launch an entirely new product.
7. A firm that launches a new product protected by a patent initially at a high price.
   
8. Increasing competition in a market is likely to:
A. raise market price and the quantity sold
B. lower market price and the quantity sold
C. raise market price and lower the quantity sold
D. lower market price and raise the quantity sold
   
9. Firms will compete to achieve all the following objectives except:
A. increased market share
B. higher sales revenues
C. product superiority
D. lower market prices
   

 

10. Market structure and prices: (Explain your answer using examples.)
  · Suggest two reasons why firms compete to supply a market with a good or service. · What is the difference between price competition and non-price competition? · What is a ‘monopoly’? · Explain what is meant by ‘destruction pricing’. What is it designed to achieve? · Other than price, suggest two ways in which a monopoly can restrict new competition to supply a product. · Draw a diagram to show the effect of a monopoly restricting the market supply of a product on its market price and quantity traded.

Case study ‘Record Industry’

CD FIRMS CLEARED OF PRICE PLOT RIP-OFF

Record companies were controversially cleared of overcharging for compact discs yesterday.

They had been accused of keeping prices artificially high – CDs cost about 1 pound to make, almost exactly the same as cassettes. But they sell in Britain for between 12.99 and 15.99 pounds, much more than a cassette and almost double what is charged in the United States.

However, the Monopolies and Mergers Commission ruled that although there is a monopoly by five companies – EMI, PolyGram, Warner, Sony, and BMG – it does not operate against the public interest.

Instead, pricing policies are justified because of strong competition within the industry, according to the watchdog body. The major firms, accounting for about 70% of the UK market, ‘competed vigorously among themselves’ and also with the independent sector, it added.

Daily Mail 24.6.94

Tasks:

Investigate the record industry and produce a short report of your findings to explain:

· The motives of the organizations that supply records and CDs

· How, and why, changes in consumer wants have affected the use of the resources and production in the record industry

· The factors that may have caused consumer wants for records and CDs to change. Use appropriate diagrams to illustrate the changes in the market conditions you have discussed and their likely impact on market price and quantity traded.

· How record companies and record shops compete

· The degree of price and non-price competition in the record industry. Do your findings support the ruling made by the Monopolies and Mergers Commission that record companies have not acted against the public interest?

· The external costs and benefits of producing records and CDs. (Hint: consider the resources required to produce records and CDs. For example, oil is raw material for vinyl records and plastic; electricity can be produced by burning oil, gas or coal)

Compare your findings on competition and business behaviour in the recorded music market with another product market where there is evidence of a higher or lower degree of business competition. For example, the gas supply industry is a good example of a near-total monopoly, while the markets for agricultural produce and raw materials tend to be highly competitive.

 


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