Some firms must accept the market price; others can choose it. That choice is market power.
Two kinds of firm
Price taker
A wheat farmer: one of thousands selling the same thing.
Price maker
A phone maker: few rivals and a brand people want.
Animated graph
Watch the graph build step by step in study mode.
Free preview
This is the free notes preview
You're reading the free notes. Aimnova Pro unlocks the full study experience — and you can try it with your first topic free to keep:
- FlashcardsLock in vocabulary and key terms with spaced repetition.
- Practice questionsAnswer exam-style questions and get instant AI marking.
- Mock exams & past-paper vaultSit full mocks and see exactly how examiners award marks.
- Personalised study planA daily plan built around your exam date and weak areas.
Economists sort markets into four structures, from no market power to a lot.
The four market structures
| Structure | Firms | Product | Barriers to entry | Market power |
|---|---|---|---|---|
| Perfect competition | Very many | Identical | None | None |
| Monopolistic competition | Many | A little different | Low | Some |
| Oligopoly | A few big ones | Same or different | High | A lot |
| Monopoly | One | Unique | Very high | The most |
Remember it as: More barriers, fewer firms, more market power.
See how examiners mark answers
Answer exam-style questions with model answers. Learn exactly what earns marks and what doesn't.
Market power lasts only while rivals are kept out. These barriers to entry keep them out.
Barriers to entry
Economies of scale
A giant's low costs mean a newcomer cannot match its prices.
Legal barriers
Patents and licences: only one firm may sell a new medicine.
Control of resources
Owning the pipes, the mine or the network.
Brands and advertising
Loyal customers are costly to win over.
Our example (made-up numbers): the concentration ratio
| Market | Top 4 firms' share of sales | So |
|---|---|---|
| Bakeries in a city | 15% | Competitive |
| Mobile networks | 90% | Oligopoly |
Quick reminder
- Axes: P or Costs, revenue up the side, Q along the bottom
- Curves: D = AR = MR (flat) for a price taker; D = AR, MR and MC for a price maker
- Marks: Pm for the price taker; P1 and Q1 where MC = MR, with P1 above MC
- Dots with dashed lines to the axes
- No numbers, no title
Animated graph
Watch the graph build step by step in study mode.
A price maker's demand slopes down, so its price ends up above its marginal cost.
Animated graph
Watch the graph build step by step in study mode.
Study smarter, not longer
Most students waste 40% of study time on topics they already know. Our AI tracks your progress and optimizes every minute.
No paper has set a long question on this micro alone yet; Paper 1 asks market-power questions as part (b) on 2.11.2. This is the part (a) shape.
Explain how barriers to entry allow firms to keep market power.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |