MARKET ECONOMY

Read the text below and then do exercise Vocabulary 1:

Economists distinguish between four distinct market models:

1) pure competition
2) monopolistic competition
3) oligopoly
4) monopoly

These four market models depend on the number of firms in the industry, whether the product is
standardized or differentiated, and how easy or difficult it is for new firms to enter the industry.

In pure competition there are a very large number of firms producing a standardized product
(e.g. wheat). New firms can enter the industry very easily. Pure competition – whose basic
feature is the presence of a large number of independently acting sellers offering their products
in a highly organized market – is rare in practice. It is a market model which helps us observe
and evaluate what goes on in the real world.

Monopolistic competition is characterized by a relatively large number of sellers producing

distinct products (e.g. women’s clothing, furniture, etc). Product differentiation may take the
form of physical or qualitative differences. Because of product differentiation, economic rivalry
takes the form of non-price competition – competition in terms of product quality, services to
consumers, location, accessibility, and advertising. Thus, differentiation is the basis for product
promotion and development. Entry to a monopolistic competitive industry is quite easy.
Monopolistic competition does not require hundreds of thousands of firms as pure competition
does, but only a fairly large number. Several characteristics of monopolistic competition follow
from the presence of a relatively large number of firms: small market share – each firm has a
small percentage of the total market, so each has limited control over market price; no collusion
– concerted action by firms to restrict output and rig price; independent actions – no feeling of
mutual interdependence among them.

In oligopoly there are a few sellers; this means that pricing and output decisions are
interdependent. Each firm is affected by the decisions of rivals and must take these decisions into
account in determining its own price-output behaviour. Oligopolies may
be homogeneous or differentiated, as products may be standardized (e.g. steel, aluminum) or
differentiated (e.g. automobiles, computers). Oligopoly often leads to collusion, meaning some
sort of formal or informal arrangement to coordinate pricing strategies and fix prices. Generally,
entry to oligopolistic industries is very difficult.

Pure monopoly is a market in which one firm is the sole seller of a product or service (e.g. a
local electric company). Entry of additional firms is, thus, blocked so that this particular
firm is the industry. Because there is only one product, there is no product differentiation.

Adapted from McConnell&Brue, Economics

Vocabulary 1

Match the words with the 1. a situation where a business activity is controlled by only
definitions: one company or by the government, and other companies do
A. monopsony not compete with it
B. public/state monopoly 2. a group of companies who agree to set the price of
C. monopoly something they produce at a fixed level in order to limit
D. natural monopoly competition and increase their own profits
E. cartel 3. a situation where there are many sellers but only one buyer
F. monopolistic competition for a product or service
G. oligopoly 4. a situation when many producers of slightly differentiated
products are able to sell them at well above their marginal cost
H. dominant firm oligopoly
5. a concentrated market dominated by a few large suppliers
I. legal monopoly
6. a monopoly allowed by the law of a particular country
7. a situation in which a market leader can indicate its
preferred price to smaller competitors
8. an industry where there is only one producer because of the
nature of the activity
9. a monopoly that is owned and managed by the government.

Vocabulary 2

Find synonyms for the following words:

1 to provide; 2 ownership; 3 enterprise; 4 to grow; 5 output; 6 input; 7 competition

Vocabulary 3

Match the words in column A with their definitions in column B:

A B
1. economic growth a. available stocks of raw materials, money, labour that a
company can use
2. ownership b. the total value of the goods produced or services performed by
a person, a company, an industry or a whole country
3. enterprise c. to furnish, to supply

4. market economy d. an informal term for a business organization

5. output e. one in which prices and quantities are determined by

supply and demand
6. resources f. an increase in per capita income, resulting from the
increased production of goods and services
7. to prosper g. possession, claim, control, property

8. to provide h. to flourish, thrive, succeed

Language 1 - Verbs followed by prepositions. Read the following sentences and fill in the blanks
with the right preposition:
1. “Economists distinguish … four distinct market situations.”
2. “These four market models depend … the number of firms in the industry.”
3. “Several characteristics of monopolistic competition follow … the presence of a
relatively large number of firms.”
4. “Oligopoly often leads … collusion, meaning some sort of formal or informal
arrangement to coordinate pricing strategies.”

Language 2 - Choose the most suitable preposition:

1. My boss always confides in Mary/on Mary.
2. I don’t know what you’re talking of/about.
3. Your work reminds me of/about my old secretary. I thought only she could be so efficient!
4. The office assistant apologized for/on not breaking the news earlier.
5. I think your new assistant is obsessed of/with her work!
6. The sales Manager congratulated Sally on/for her signing the contract.
7. I think you should devote yourself for/to improving your negotiating skills!
8. The whole team decided Tom couldn’t be trusted in/with any inside information.

Language 3 - Choose the most suitable verb underlined:

1. Don’t worry about the next week’s meeting! I’ll devote/see to it!
2. I’m sorry I have to remind you that everybody must comply/meet with the company’s
regulations.
3. This time bankruptcy is inevitable, so be prepared to meet/fight with disaster.
4. I can’t believe you suspected/convicted Jim of being a mole.
5. The Accounts Manager is involved/committed in the scandal.