Section A: Key terms and recall
Define a competitive market. [2 marks]
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A market where there are many buyers and sellers, and no single buyer or seller can influence the market price. [2 marks]
Give one example of a competitive market. [1 mark]
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Examples may include agricultural markets, such as the market for wheat or coffee. [1 mark]
Define a monopoly market. [2 marks]
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A market where there is a single seller of a product with no close substitutes. [2 marks]
Give one example of a monopoly market. [1 mark]
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Examples may include utility companies, such as a local water or electricity provider. [1 mark]
Identify one characteristic of a monopoly market. [1 mark]
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Examples may include high barriers to entry, single seller, price maker, and unique product. [1 mark]
Section B: Applying your knowledge
Explain how a competitive market determines the price of a good. [2 marks]
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In a competitive market, the price of a good is determined by the interaction of supply and demand. The market price is the price at which the quantity demanded equals the quantity supplied. [2 marks]
A local farmer sells organic vegetables at a market. There are many other farmers selling similar organic vegetables. Is this a competitive market? Explain your answer. [2 marks]
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Yes, this is a competitive market because there are many sellers offering similar products, and no single seller can influence the market price. [2 marks]
A software company has developed a unique operating system. There are no other companies selling a similar operating system. Is this a monopoly market? Explain your answer. [2 marks]
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Yes, this is a monopoly market because there is only one seller of a unique product with no close substitutes. [2 marks]
Explain how a monopoly can influence the price of a good. [2 marks]
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A monopoly can influence the price of a good because it is the sole seller and there are no close substitutes. The monopoly can set a price above the competitive level to maximise its profits. [2 marks]
Section C: Explain and analyse
Analyse the impact of a competitive market on consumers. [4 marks]
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In a competitive market, consumers benefit from lower prices, a wider variety of goods, and better quality products. Sellers compete to attract consumers, which leads to innovation and efficiency. However, in the long run, profits may be driven down to zero as new firms enter the market. [4 marks]
Discuss the advantages and disadvantages of a monopoly market. [6 marks]
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Advantages of a monopoly market include the ability to fund research and development, economies of scale, and the ability to set prices to maximise profits. Disadvantages include the lack of competition, which can lead to higher prices, lower quality products, and a lack of innovation. Monopolies can also exploit their market power to the detriment of consumers. [6 marks]
Section D: Challenge
Evaluate the role of government intervention in markets. [6 marks]
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Government intervention in markets can take many forms, such as price controls, regulation, and antitrust laws. The role of government intervention is to correct market failures, protect consumers, and promote fairness and efficiency. However, excessive intervention can lead to market distortions, such as shortages or surpluses, and can stifle innovation and competition. The effectiveness of government intervention depends on the specific market conditions and the type of intervention used. [6 marks]