A Level Economics AQA Practice Exam

What characterizes a pure monopoly?

1. Multiple suppliers of similar products

2. A single supplier of a unique product with no close substitutes

3. A market with many buyers but few sellers

4. A situation where supply exceeds demand

The correct answer is: A single supplier of a unique product with no close substitutes

A pure monopoly is defined by the presence of a single supplier that controls the market for a unique product or service, which has no close substitutes available for consumers. This exclusivity allows the monopolist to set prices and output levels without direct competition, giving them significant market power. The lack of substitutes means that consumers cannot easily switch to another product if the price rises or the quality decreases, leading to a distinctive market dynamic where demand interacts solely with the monopolist's pricing and production strategies. In contrast, options that involve multiple suppliers or similar products describe competitive market structures rather than monopoly. Furthermore, a market characterized by many buyers but few sellers suggests an oligopoly, which involves competition among a limited number of providers. Finally, the concept of supply exceeding demand does not relate specifically to monopoly conditions and can occur in various market situations, including those with competitive environments. Thus, the defining feature of a pure monopoly is indeed the presence of a single supplier of a unique product with no close substitutes.