Monopoly Characteristics Practice Quiz: AP Microeconomics Review

📚 Topic Summary

A monopoly exists when a single firm controls the entire market for a particular product or service. This firm faces a downward-sloping demand curve and has the power to set the price, unlike firms in perfectly competitive markets. Key characteristics of monopolies include a single seller, unique product, high barriers to entry, and potential for long-run economic profits. Understanding these characteristics is crucial for analyzing market structures and their implications.

🔤 Part A: Vocabulary

Match each term with its correct definition:

1. Monopoly
2. Barriers to Entry
3. Price Maker
4. Deadweight Loss
5. Natural Monopoly

Definitions:

1. A market situation where a single firm can supply a good or service to an entire market at a lower cost than two or more firms could.
2. A firm that has the power to influence the market price of its product.
3. The reduction in economic surplus resulting from a market not being in competitive equilibrium.
4. A market structure characterized by a single seller, producing a unique product with no close substitutes.
5. Obstacles that prevent new firms from entering a market.

(Match the numbers to the correct definitions.)

✍️ Part B: Fill in the Blanks

Complete the following paragraph with the correct terms:

A __________ is characterized by a single __________. Due to __________, other firms cannot easily enter the market. This allows the firm to act as a __________, setting the price above __________ and creating a __________. This inefficiency results in a loss of __________ to society.

Word Bank: monopoly, seller, barriers to entry, price maker, marginal cost, deadweight loss, economic surplus

🤔 Part C: Critical Thinking

Explain how patents can create monopolies and discuss the potential trade-offs between encouraging innovation and limiting competition.