Market and Market Structure Economics Q & A (1)

1. What is the market structure of shops selling sports shoes in Hong Kong? List three ways of competition
among firms under this market structure. (4 marks)

Ans: It is a monopolistic competition. The shops in monopolistic competition will engage in

price competition. They will also engage in non-price competition such as packaging and
after care services. They also compete by offering extra benefits to the customers (e.g.
gifts, coupons). They may also compete by advertising (e.g. larger, attractive posters).

2. Personal computers of the same type are sold in many shops in Hong Kong at slightly different prices.
I) Explain with an example why there is such a price difference. (2 marks)

II) Identify the market structure of these shops. (1 marks)

Ans: I) As the services provided by different shops may be different, the prices charged
will then be different. Some firms offering delivery or after-sale maintenance
services will charge a higher price.

Moreover, the price difference may be caused by the imperfect information of the
market. Neither the sellers nor the buyers have perfect information of the market
so that some sellers will take advantage of this and charge a slightly higher price
for higher profits.

II) It is a monopolistic competition.

3. What is the market structure of petroleum companies (e.g. Shell, Mobil) in Hong Kong? Explain your
answer. (3 marks)

Ans: Petroleum companies belong to oligopoly as there are only a few dominating firms
and their behavior are interdependent on one another. The actions of one seller will be
promptly reacted to by other sellers. They also involve in non-price competition.
Information is imperfect and the entry is difficult as the existing companies have
already captured considerable market shares.

4. State THREE features of the market structure of stores selling computer hardware in the Golden
Computer Centre. (3 marks)
Ans: - many sellers / buyers
- differentiated products
- easy entry / exit
- imperfect information
- price competition
- non-price competition
 Market and Market Structure Economics Q & A (2)

5. Based on the information given in the following advertisements, give TWO reasons to explain why the
travel agencies industry in Hong Kong is not perfectly competitive. (4 marks)

ABC Travel Ltd. XYZ Travel Ltd.

Japan 5-day Deluxe Tour Japan 5-day Leisure Tour
- Tokyo (including a ticket for Disneyland) - Tokyo
- 5 Star Hotels - 4 Star Hotels
Special Offer: $5,999 Special Offer : $3,999

Ans: Firstly, there are differentiated products. The tour services provided are different for the 5-day
package.
Secondly, there is price competition. The fees for the 5-day tour are different.

6. To what type of market structure does the telecommunication industry of Hong Kong belong? State
THREE features of this type of market structure. (4 marks)

Ans: Oligopoly
- a few dominating sellers
- interdependency
- non-price competition
- heterogeneous product
- entry barriers
- imperfect information
- price competition

7. Each year, during the tourism peak season of the National Day golden week in October, a large
number of tourists from Mainland China visit Hong Kong.Cosmetics is one of the favourite consumer
goods bought by these tourists. There are many retail shops selling cosmetics in Hong Kong. There is
keen competition among these shops. Give two reasons to explain why the market structure of these
retail shops is not perfect competition. (4 marks)

- Differentiated products, e.g. different service provided by different shops,

- Different prices / price searching, e.g. different discounts to different customers,
- Imperfect information, e.g. customers do not know the prices of different shops,
- Non-price competition, e.g. gifts given by some shops to their customers,

8. Many university students work as part-time private tutors in their spare time. Give two reasons to explain
why the market structure of private tuition in Hong Kong is not perfect competition. (4 marks)

- Different prices, e.g. not the same tuition fee

- Heterogeneous products, e.g. different quality of teaching
- Non-price competition, e.g. advertising in supermarkets
- Imperfect information, e.g. one may not know who can teach well
 Market and Market Structure Economics Q & A (3)

9. Apple, Samsung and Nokia all manufacture mobile phones. What is the market structure of mobile phone
manufacturers? State THREE features of this type of market structure. (4 marks)

Ans: Oligopoly
- a few dominating firms
- price searcher
- interdependence of policies
- product can be heterogenous
- non-price competition
- not easy to enter the industry
- imperfect information

10. Identical bottles of red wine are sold in different shops at different prices. Give TWO reasons to explain
why there is such a price difference. (4 marks)

Ans:
- different services, e.g., only some shops provide the delivery service
- imperfect information, e.g., customers do not know which shops sell at a lower price
- different production cost, e.g., different rental payments

11. What is the market structure of mobile phone retailing shops in Hong Kong? State THREE features of this
type of market structure. (4 marks)

Ans: Monopolistic competition

Features of monopolistic competition
- many sellers
- free entry and exit
- heterogeneous products
- imperfect market information
- non-price competition
- price searcher

12. The local property market is considered to be overheated. Most private housing is constructed by
several major property developers in Hong Kong. State the market structure of the private housing
market and list TWO features of such kind of market structure. (3 marks)

Ans: Oligopoly
- a few dominating firms
- price searcher
- interdependence of pricing policies
- product can be heterogenous
- non-price competition
- not easy to enter the market
- imperfect information
 Market and Market Structure Economics Q & A (4)

13. In Hong Kong, there are many travel agencies providing tour groups and booking services for air
tickets. Give TWO reasons to explain why the market structure of travel agencies in Hong Kong is
NOT perfect competition. (4 marks)

Ans: Reasons:
- Sellers provide heterogeneous services, e.g. different tour groups.
- Market information is imperfect, e.g. information about routes and services.
- Sellers engage in both price and non-price competition, e.g. advertisements.

14. Ah Wing runs a store selling mobile phone accessories in Mong Kok. Identify the market structure of
mobile phone accessories retailers in Hong Kong. Give TWO reasons to support your answer.
(3 marks)

Ans: Monopolistic competition

Reasons: - many sellers / no dominant sellers
- sellers selling heterogenous goods
- free to enter the market

15. McDonald’s is one of the major fast food chains in Hong Kong. McDonald’s had expanded its
business by operating McCafe, which sells premium coffee like other coffeehouses such as Starbucks.
The price of a cup of Espresso in McCafe is lower than that in Starbucks. Suggest TWO possible
reasons to explain why there is such a price difference. (4 marks)

Ans: Possible reasons: - Lower-quality coffee

- Lower productive cost
- Less pleasant environment
- Less attractive brand name

16. Ocean Park and Hong Kong Disneyland are the two large theme parks in Hong Kong. What is the
market structure of the theme park industry in Hong Kong? List TWO features of this market
structure? (4 marks )

Ans: Oligopoly
- several dominant firms
- entry barrier
- interdependent pricing strategies
- imperfect market information
- price and non-price competitions
 Market and Market Structure Economics Q & A (5)

17. Solar energy becomes an increasingly important energy source in the sunny western provinces, like
Gansu and Xinjiang, in China. The diagram below shows the market shares of Top 10 solar
photovoltaic (PV) module manufacturers in 2012.

What was the market structure of the above solar PV module market? List two features of this market
structure. (3 marks)

Ans: Monopolistic competition

Features: - Many sellers
- Price searchers
- (slightly) differential products
- Non-price competition
- Imperfect information

18. Refer to the following chart.

What was the market structure of the above market in 2015? List TWO features of this market
structure. (3 marks)

Ans: Oligopoly
- several dominant firms
- entry barrier
- interdependent pricing strategies
- imperfect market information
 Market and Market Structure Economics Q & A (6)

19. Tourism is one of the ‘pillar industries’ in Hong Kong.

With reference to Source 1, give TWO reasons to explain why the market structure of Hong Kong’s
hotel industry is NOT perfectly competitive. (4 marks)

Ans: Reasons:
- Sellers provide heterogenous services, e.g. rooms with different size / features
- Market information is imperfect, e.g. information about quality of services.
- Price searcher/ under competition there are different prices e.g. different price for rooms
offered by different hotels.

20 . Give TWO reasons to explain why the smartphone market is NOT perfectly competitive.
(4 marks)

Ans: - Sellers provide heterogenous goods, e.g. smartphones with different specification
- Market information is imperfect, e.g. information about the performance of the smartphone
- There is non-price competition, e.g. advertisement.