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economics paper 1 > market structure > Flashcards

market structure Flashcards

1
Q

efficiency meaning

A

used to judge how well the market allocates resources

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1
Q

static efficiency meaning

A

efficiency at one period of time
made of allocative and productive efficiency

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2
Q

allocative efficiency meaning

A

quantity set at AR=MC
resources are used to produce goods and services which consumers want and value most highly and social welfare is maximised

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3
Q

dynamic efficiency meaning

A

efficiency over time
causes innovation and research and development

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4
Q

productive efficiency meaning

A

firm produces at the lowest average cost

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5
Q

x inefficiency meaning

A

firm fails to minimise its average cost at a given level of output

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6
Q

social efficiency meaning

A

MSC=MSB so there is no external cost from an economic transaction

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7
Q

characteristics which determine market structure

A

barriers to entry/ exit
if goods are differentiated or homogenous
how much knowledge a firm shares
interdependence

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8
Q

perfect competition meaning

A

market structure where there are
many buyers and sellers
no barriers to entry / exit
homogenous goods
perfect information

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9
Q

short run vs long run in perfect competition

A

super normal profits attracts new firms into market
shifts S to the right until no more incentive to enter

if there are subnormal profits firms will leave the market and S shifts to the left until no more incentive to leave

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10
Q

pro of perfect competition

A

allocative efficiency, productive efficiency, dynamic efficiency are possible in short run

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11
Q

con of perfect competition

A

no dynamic efficiency in lonng run as no super normal profits
small firms no economies of scale
model vs reality
perfect info hard to achieve

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12
Q

monopolistic competition meaning

A

where large number of small firms produce slightly differentiated products with no barriers to entry

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13
Q

assumptions in a monopolistic market

A

no barriers to entry/ exit
low concentration ratio- many firms operating in market so change in price by one firm has little effect on demand for rival products
differentiated goods

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14
Q

ev for monopolistic market

A

imperfect information
different firms have different sizes and different cost so not all will work where they make supernormal profits
firms will come and go so unstable market

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15
Q

oligopoly meaning

A

market dominated by few large firms

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16
Q

assumptions in oligopoly

A

high barriers to entry/ exit
high concentration ratio- 7 firms with &)% market share
differentiated goods
interdependence

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17
Q

why won’t firms increase prices in an oligopoly

A

their good will become elastic and other firms will undercut them so they would lose revenue

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18
Q

why won’t firms decrease prices in an oligopoly

A

there good becomes more inelastic and they get more demand but other firms will undercut them to maintain market share leading to a price war

19
Q

collusion meaning

A

when firms make a collective agreement that reduces competition
fix quantity or price

20
Q

over collusion meaning

A

formal agreement
legal collusion

21
Q

tacit collusion meaning

A

aim to reduce competition
illegal

22
Q

con of collusion

A

loss of consumer welfare as increase in P and decrease in Q
lack of competition so inefficiencies and quality decrease
increases barriers to entry
illegal- 10% of turn over
cheating the quota- firms can undercut each other for more profit

23
Q

pro of collusion

A

increases profits
invest money into quality
saves on research and development
higher producer surplus

24
Q

conditions for collusive oligopoly

A

small number of firms
barriers to entry prevent new firms
monitoring to prevent under cutting
homogenous goods so there is less choice
PED inelastic

25
Q

game theory meaning

A

reactions of one firm to a change in strategy of another firm

26
Q

dominant strategy meaning

A

optimal move for an firm regardless of how other firms act

27
Q

nash equilibrium meaning

A

optimum behaviour of firms where both of them make optimum profits

28
Q

price wars meaning

A

firms constantly undercutting prices decreasing profits

29
Q

predatory pricing meaning

A

firms setting low prices to drive out firms (illegal)

30
Q

limit pricing meaning

A

setting low prices to discourage new entrants

31
Q

non price competition meaning

A

aim to increase loyalty and make demand more inelastic
quality of good
quality of customer service
special offers
advertising
innovation

32
Q

monopoly meaning

A

when there is one dominant producer in a market

33
Q

assumptions of a monopoly

A

sole market supplier
high barriers to entry
no substitutes
imperfect info
high sunk costs

34
Q

price discrimination meaning

A

when a supplier charges different groups of people different prices

35
Q

conditions for price discrimination

A

separate consumers into groups that have different elasticities
able to control supply
prevent markets from c

36
Q

legal monopoly meaning

A

continuous monopoly protected by law

37
Q

natural monopoly meaning

A

where economies of scale are so large that there is only room for 1 supplier in market

38
Q

natural monopoly effect on firms/ workers

A

pro:
SNP made
compete overseas
maximum EOS so little costs
higher wages

con:
might not profit maximise
lack of competition leads to inefficiencies
low output so less workers

39
Q

natural monopoly effect on consumers

A

pro:
net welfare gain due to cross subsidisation- more equality
greater range of goods - more profits - innovation

con:
higher price
lower quantity
less choice as only one producer

40
Q

monopsony meaning

A

when there is only one buyer in the market

41
Q

conditions for a monopsony

A

one buyer
firm pay lowest possible price to minimise cost
firm sets price

42
Q

pro of monopsony

A

lower price = more profits = innovation
lower prices
higher profits
purchasing economies of scale

43
Q

con of monopsony

A

suppliers lose out on profits
employees lower wages as only one labour demander
(ev, trade unions and may have higher wages with more profits)
unproductive labour because of low wages
fall in quantity due to lower price

44
Q

perfectly contestable market meaning

A

perfect info
freedom of entry and exit
low sunk cost
perfect info - best tech used
low product loyalty
firms maximise profits in short run

45
Q

types of barriers of entry and exit

A

legal- laws to make it more difficult to enter

marketing- high ads so consumer loyalty

pricing- limit/ predatory pricing

economies of scale- new firms cannot produce at the same AC as large firms

46
Q

factors promoting contestability

A

online markets
deregulation
tougher competition laws

economics paper 1 (9 decks)

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