Competition, Market Power and Barriers to Entry · seed 1 · A4, ink-friendly. The answer key prints on its own page for grown-ups.
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Why one baker cannot overcharge but a water firm can

Civics & Economics · Economics · ages 15-16
Name ______________________   Date ____________

  1. Which market has a few large sellers watching each other?

    • Perfect competition
    • Monopoly
    • Oligopoly

  2. One baker in a big city tries to quadruple bread prices. What happens?

    • Buyers pay it, since bakers set prices alone
    • Rivals take the sale
    • Bread stops being food

  3. Which is a legal barrier to entry?

    • A drug patent that keeps rivals out for years
    • A cafe printing a new menu
    • A stall selling the same potatoes as fifty neighbours

  4. Why does a single-price monopoly usually sell less at a higher price than competition facing the same demand and costs?

    • It stops expanding once extra revenue no longer beats extra cost
    • It runs out of paper for menus
    • It gives most output away for free

  5. Why can one water company charge close to what it likes?

    • Because water falls as rain
    • Because one grid costs less than rival pipe systems, blocking entry
    • Because pipes never leak

  6. Antitrust law punishes any firm that succeeds by being better.

    Circle one:   True   False

  7. Two drug firms merge into the only seller, then raise prices. What should the referee do?

    • Block or undo the merger that killed rivalry
    • Fine the patients for buying medicine
    • Ban all patents everywhere at once

  8. Who loses from the gap between the monopoly price and the competitive price?

    • Nobody, the gap is imaginary
    • Buyers lose surplus
    • Only the government
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Answer key

For grown-ups. Fold this page away before handing over the rest.

Why one baker cannot overcharge but a water firm can W1-mt_7rSbpD7hJ1-s1

  1. Oligopoly · A few big players define oligopoly, watching every rival move.
  2. Rivals take the sale · Crowded sellers of the same thing cannot hold a price above the rest.
  3. A drug patent that keeps rivals out for years · Patents and licences block entry by law, which builds market power.
  4. It stops expanding once extra revenue no longer beats extra cost · Restricted output supports the higher price buyers then pay.
  5. Because one grid costs less than rival pipe systems, blocking entry · Scale is the barrier: big is simply cheaper, so rivals stay out.
  6. False · It protects rivalry, and a firm that wins by being better is left alone.
  7. Block or undo the merger that killed rivalry · Antitrust guards the process of rivalry, not any single price tag.
  8. Buyers lose surplus · Part of the lost consumer surplus becomes the firm's profit. The rest is gains from trade that never happen.
Worksheet · LightMySky