Market & Industry Analysis Flashcards

Which elasticity concept measures the percentage change in demand for Good A resulting from a percentage change in the price of Good B?

Answer: Cross-price elasticity of demand

Cross-price elasticity of demand measures how the quantity demanded of one good responds to price changes in another related good.

A positive cross-price elasticity between two goods indicates they are:

Answer: Substitute goods

When goods are substitutes, a rise in one good's price increases demand for the other, producing a positive cross-price elasticity.

Market power is most commonly measured by which indicator?

Answer: Lerner Index

The Lerner Index measures market power as (P − MC)/P, ranging from 0 (perfect competition) to 1 (pure monopoly).

Regulatory capture occurs when:

Answer: Government regulators begin serving industry interests rather than the public

Regulatory capture describes the phenomenon where regulatory agencies advance the commercial interests of the industries they are supposed to regulate.

In industry analysis, a 'strategic group' refers to:

Answer: Firms within an industry using similar competitive strategies

Strategic groups are clusters of firms within an industry that follow similar strategies and compete more directly with each other than with firms in other groups.

A natural monopoly exists when:

Answer: A single firm can produce total market output at lower cost than multiple firms

Natural monopolies arise from economies of scale so extensive that average costs decline over the entire range of market demand, making one firm most efficient.

When computing the four-firm concentration ratio (CR4), an analyst uses:

Answer: The combined market share of the four largest firms

CR4 is simply the sum of the market shares of the four largest firms, expressed as a percentage of total industry sales.