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iGCSE Economics
1.2.20 Monopolies
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Stenio Jonathan
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Cards (23)
define monopoly
when there is a dominant seller in a market
What are the Features of a Monopoly (4)
It is a firm that
dominates
the market
Unique
product
Price Maker
Barriers to
Entry
unique product
Products that are highly
differentiated
and have no substitutes in a pure
monopoly
How can a monopoly change the prices they charge
They can
increase
the prices they charge by
restricting
the quantity supplied of their goods in the market
How do other firms monopolies happen?
Monopolies happen when competition is
discouraged
Monopolistic markets markets have a high/low barriers to entry. Why?
High, because there's obstacles preventing from a new entrant from trying to compete
What are legal barriers in a monopoly? What does it mean?
when the
government
can award a contract to a firm to provide a service with
forbidden
competition, BtE
what is a patent?
licence that grants permission to operate as a sole
producer
of a newly designed product,
BtE
How are patents significant to a firm being a monopoly?
they can make a firm the sole supplier of a product for up to
20
years,
BtE
how can a firm use the money gained from patents?
they can charge
higher
prices
and use the money for
R&D
costs
What
are marketing budgets in an monopoly?
Normally
monopolists
have a strong name, spending a lot on
advertising
, which new firms wouldn't be
trusted
with
ads
, BtE
what is technology in an monopoly
When a firm has
up-to-date technology
, it could be
high BtE
In relation with monopolies, what are high start-up costs?
the cost of setting up a firm is sometimes too
high
for
other
firms
How can high start up costs prevent competition?
because some firms might find it
difficult
to match such
financial commitment
What are the advantages of an Monopoly?(3)
Innovation
Efficiency
EoS
How could efficiency be an advantage of a Monopoly? (2)
In natural monopolies, it is more
efficient
for
one
firm to supply all
customers
Firms
exploit
EoS because of this
How could innovation be an advantage of a monopoly for booth a firm and a consumer? (2)
Monopolies
make
high
profits, and with that money they can invest in
R&D
Consumers benefit from new
products
and new
tech
How could EoS be an advantage of a monopoly for a firm and a customer?
low
avg
costs
, low
price
What
are the disadvantages of a monopoly? (4)
High prices
Restricted
choice
Lack of
Innovation
Inefficiency
How can high prices be a disadvantage for Monopolies?
Monopolies can
restrict
output
to force up the
price
How could restricted choice be a disadvantage for monopolies?
SInce the customers wouldn't be able to
switch
suppliers
if
dissatisfied
How could lack of innovation be a disadvantage of monopolies in a market?
Because firms don't have the
incentive
to spend money on
innovation
, since its the only
choice
in the market
How is Inefficiency a disadvantage of monopolies in a market? (3)
No
competition
-> No
incentive
to keep
cost
down
DoS
-> higher
avg
costs
-> High
prices
poor
customer
service