Association of Chartered Certified Accountants (ACCA) Certification Practice Test

In a monopoly market, which characteristic is present?

1. Many producers and few consumers

2. Many buyers but only one producer

3. Perfectly elastic demand

4. Low barriers to entry

The correct answer is: Many buyers but only one producer

In a monopoly market, one of the defining characteristics is the presence of many buyers but only one producer. This dynamic occurs because a monopoly exists when a single firm has exclusive control over the production and supply of a particular good or service. As a result, that single producer can set prices and dictate market conditions without direct competition. In this scenario, the single producer faces the entire market demand and can influence the price, leading to unique dynamics in pricing and production strategy. This characteristic of having many consumers relying on one provider is fundamental to the concept of monopoly and differentiates it from other market structures, such as perfect competition, where multiple producers provide similar products or services. The other options do not accurately reflect the nature of a monopoly. A market with many producers and few consumers represents an oligopoly or another structure like competitive markets. Perfectly elastic demand implies a market condition where prices can change with very little change in demand, which is not a feature of monopolistic markets. Low barriers to entry suggest that new firms can easily enter the market, undermining the very definition of a monopoly that typically has high barriers to entry that prevent competition.