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Bord Bia reported the total value of the Artisan Food market to be growing strongly, leading to more firms entering the industry - Leaving Cert Economics - Question c - 2017
Question c
Bord Bia reported the total value of the Artisan Food market to be growing strongly, leading to more firms entering the industry. (Bord Bia defines Artisan Food as b... show full transcript
Worked Solution & Example Answer:Bord Bia reported the total value of the Artisan Food market to be growing strongly, leading to more firms entering the industry - Leaving Cert Economics - Question c - 2017
Step 1
State a market structure which most closely reflects this situation, giving reasons for your answer.
Answer
The market structure that most closely reflects the Artisan Food market is 'imperfectly competitive' or 'monopolistically competitive'.
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Many Firms: There are numerous firms within this market, each having a relatively small market share. Each artisan producer is too minor to influence the overall market significantly.
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Freedom of Entry and Exit: The market allows for easy entry and exit, meaning new firms can join or leave the industry without significant barriers.
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Product Differentiation: The Artisan Food market is characterized by product differentiation. Each firm's offerings vary slightly, which gives them some power over pricing despite the existence of close substitutes.
Step 2
Explain the shape of the demand curve of a firm in this market structure.
Answer
In an imperfectly competitive market, the demand curve faced by a firm is downward (negatively) sloping.
This is because the firm sells differentiated products, which grants it some market power regarding pricing. Each firm offers a product that, while similar, distinguishes itself from competitors. Thus, when a firm raises its prices, consumers may switch to rival products that have become relatively cheaper, leading to a decrease in demand for the original firm's goods. Conversely, if the firm lowers its prices, it can attract more customers, demonstrating that the demand is not perfectly elastic.