If social costs exceed social benefits, the decision to produce a good or service makes society worse off even if the producers make a profit.

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.