HKDSE Economics in Life – Microeconomics 1
Chapter 12 Market Structure
Suggested Answers
Chapter 12 Market Structure Suggested Answers
Exercise 12.1
(a) No
(b) No
(c) No
(d) Yes
Exercise 12.2
Number of sellers
Nature of products
Freedom of entry
Sellers’ influence on market price
Perfect competition
Many
Homogenous
Free entry
Nil (price takers)
Monopolistic competition
Many
Heterogeneous
Free entry
Some (price searcher)
Perfect competition
A few dominant
sellers
Homogenous or
heterogeneous
Restricted
Monopolistic competition
Imperfect
Imperfect
Nil (price searcher)
Some (price searcher)
Exercise 12.3
(a)
Number of sellers
Nature of products
Freedom of entry
Availability of market
information
Sellers’ influence on market price
Many
Heterogeneous
Free entry
(b) Supermarkets: oligopoly
Newspaper retailing: monopolistic competition
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HKDSE Economics in Life – Microeconomics 1
Chapter 12 Market Structure
Suggested Answers
Exercise 12.4
(a) Correct
(b) Incorrect
(c) Incorrect
(d) Correct
Exercise 7.5
(a) Monopoly
(b) The company does not face direct competition, but it still faces competition from
sellers who sell imperfect substitutes, such as bus running between Central and the
Peak.
Revision Exercise
Multiple Choice Questions
1. B
2. A
3. D
4. D
5. D
6. B
7. D
8. C
9. A
10. C
11. C
12. B
13. C
14. D
15. D
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HKDSE Economics in Life – Microeconomics 1
Chapter 12 Market Structure
Suggested Answers
Short Questions
1. Monopolistic competition. (1)
Features:
- large number of buyers and sellers
- heterogeneous products
- free entry and exit
- imperfect information
- price searchers
- price competition and non-price competition
- any reasonable answers
(Mark the FIRST THREE points only, 1 mark each)
2. (a) - Correct. (1)
- The market price is determined by market demand and supply. Individual sellers
cannot influence the market price. (2)
(b) - Incorrect. (1)
- Obtaining a franchise is merely one of the sources of monopoly power. (2)
(c) - Correct. (1)
- Market competition is lessened. The supermarket becomes a monopolist and has
complete control over the price and the variety of products. (2)
OR
- Incorrect. (1)
- Production scale increases after the merger. The supermarket can enjoy various
benefits from economies of scale. For example, it can utilise more fully the
equipments and thus reduce the average cost. The price may be lowered and the
citizens of the city may be benefited. (2)
3. Oligopoly. (1)
Features:
- several dominant sellers
- heterogeneous or homogeneous products
- barriers to entry
- imperfect information
- price searcher
- interdependence of firms
- non-price competition
- any reasonable answers
(Mark the FIRST THREE points only, 1 mark each)
4. (a) Possible reasons:
- heterogeneous products
- price searchers
- non-price competition
- imperfect information
- any reasonable answers
(Mark the FIRST TWO points only, 2 marks each)
(b) (i) Lateral expansion. (2)
(ii) Possible motives:
- to spread risk through diversification
- to take advantage of brand names
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HKDSE Economics in Life – Microeconomics 1
Chapter 12 Market Structure
Suggested Answers
- to invest in other more profitable industries
- any reasonable answers
(Mark the FIRST TWO points only, 1 mark each)
Long Questions
1. (a) Oligopoly. (1)
Features:
- several dominant sellers
- heterogeneous or homogeneous products
- barriers to entry
- imperfect information
- price searchers
- interdependence of firms
- non-price competition
- any reasonable answers
(Mark the FIRST THREE points only, 1 mark each)
(b) (i) Monopoly. (1)
(ii) Features:
- single seller
- no close substitutes
- barriers to entry
- imperfect information
- price searcher
- non-price competition
- any reasonable answers
(Mark the FIRST TWO points only, 1 mark each)
(b) (iii) Yes. (1)
Although the provider of the new mobile communication service is a monopolist, it
still faces competition from other providers providing other mobile communication
services, which are substitutes. It also has to compete with other firms for inputs like
labour and capital and has to prevent the potential competitors from entering the
market in order to maintain its monopoly status. (3)
2 (a) No. (1)
Reasons:
- The services provided are heterogeneous instead of homogeneous.
- The two travel agencies are price searchers instead of price takers.
- any reasonable answers
(Mark the FIRST TWO points only, 2 marks each)
(b) - imperfect information
- product differentiation
- any reasonable answers
(Mark the FIRST TWO points only, 2 marks each)
(c) - sponsoring television travel programmes
- developing new destinations
- providing online booking services
- any reasonable answers
(Mark the FIRST TWO points only, 2 marks each)
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HKDSE Economics in Life – Microeconomics 1
Chapter 12 Market Structure
Suggested Answers
Economics between the Lines
Introduction
 According to the news, how will the tariff of CLP change in the coming few
years?
CLP estimated potential tariff hikes would range between 30% and 40%.
Analysis
 Explain the type of market structure that CLP is in.
- monopoly
- It is the only electricity supplier in Kowloon and the New Territories.
- It is a natural monopoly, mainly due to the high set-up cost.
- any reasonable answers
 Is CLP a price searcher or a price taker with regard to its tariff?
It is a price searcher. However, its tariff hikes are subject to the approval of the
government ba sed on the scheme of control.
 Is it possible for new firms to compete with CLP in the market?
It is possible. No exclusive right is needed to supply electricity in the
market, but the cost of setting up is very high. (OR any reasonable answer)
Evaluation
 Do you think the existing scheme of control which allows CLP a maximum
profit of 9.99% should be extended?
Any reasonable answer
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