Cambridge International as and a level Economics Ebook

particularly useful in explaining how costs vary with a 
firm’s output.
■ 
In the long run, as output expands, the benefits from 
falling average costs are known as economies of 
scale; these benefits can accrue both within and from 
outside of a particular firm.
■ 
The structure of markets can be explained by various 
characteristics including the strength of barriers to 
entry, the number and size of firms, the nature of the 
product and the availability of information.
■ 
Economists recognise various models of market 
structure, namely perfect competition, monopoly, 
monopolistic competition and oligopoly; these models 
are useful for making comparisons with real markets.
■ 
Many real-world markets are increasingly contestable 
in their structure.
■ 
Firms compete in various ways depending upon the 
market structure in which they operate.
■ 
Although economic power rests with large firms, 
small firms are more typical and are able to survive 
for many reasons.
■ 
Firms can grow through integration, diversification 
and mergers; they also form cartels.
■ 
The normal objective of a firm is profit maximisation; 
other objectives may also be relevant in some types 
of market structure, especially in oligopoly.
■ 
Price discrimination, limit pricing and price leadership 
are all forms of pricing policy practised by oligopolies.
■ 
The main models of market structure themselves can 
be compared in terms of their relative output, profits 
and eff iciency.
SUMMARY
Exam-style questions
1
‘Stores Wars’ hits the UK supermarket business
The supermarket business in the UK is dominated by the 
so-called ‘Big Four’. Their market shares in March 2014 are 
shown below:
Tesco
28%
Asda
19%
Sainsburys 18%
Morrisons
11%
Other established supermarkets, notably the 
Co-operative and Waitrose, are way behind with 
market shares of 5–6%.
Over the year to March 2014, Tesco and Morrisons have 
lost out whilst the other two have hung on to retain or 
marginally increase their market share.
UK supermarkets are in a fiercely competitive business. Since 
2008, consumer spending on food has been cut mainly as a result 
of recession. At the same time, established supermarkets have 
faced a new challenge from German-owned discounters Aldi and 
Lidl. When they first entered the market a few years ago, they had 
a ‘no-frills’ image and oft en sold products that were unknown to 
UK consumers. That has now changed. Both have expanded their