3.4 - Market Structures

Question 1

What is the condition for allocate efficiency and what is achieved

Answer 1

P =mc, social welfare maximised

Question 2

Where does productive efficiency occur

Answer 2

Lowest point on AC curve or MC=AC

Question 3

What is dynamic efficiency and what is needed

Answer 3

When resources are allocated efficiently over a period of time needs supernormal profit

Question 4

Where is x- inefficiency

Answer 4

Producing above AC curve

Question 5

What markets are price makers/takers

Answer 5

Price takers: perfect competition
Price makers: monopolistic competition, oligopoly, monopoly

Question 6

Characteristics of perfect competition (4)

Answer 6

1. Many buyers and sellers
2. Freedom of entry and exit
3. Perfect information
4. Homogenous products

Question 7

What do firms in perfect competition make in the long run

Answer 7

Normal profit

Question 8

Perfect competition efficiencies?

Answer 8

Productive - yes
Allocative - yes
Dynamic-no

Question 9

Examples of perfectly competitive markets?

Answer 9

Agriculture,

Question 10

Examples of monopolistic competition

Answer 10

Hairdressers, estate agents and restaurants

Question 11

Characteristics of monopolistic competition

Answer 11

1. Large number of buyers and sellers
2. No barrier to entry or exit
3. Differentiated products

Question 12

What does monopolistic competition make in the long run

Answer 12

Normal profit

Question 13

Monopolistic competition efficiencies

Answer 13

Productive- no
Allocative - no
Dynamic-yes

Question 14

Characteristics of oligopoly

Answer 14

1. Small number of firms
2. Barriers to entry
3. Differentiated products
4. High concentration ratio

Question 15

What is collusion

Answer 15

When firms make a collect agreement that helps to reduce competition

Question 16

What is the difference between overt and tacit collusion

Answer 16

Over = formal agreement
Tacit = no agreement

Question 17

What is price leadership

Answer 17

Tacit collusion, where one firm has advantages due to size so other firms follow to avoid price wars

Question 18

When can game theory used

Answer 18

Non-collusive oligopolies

Question 19

What are the 3 main types of price competition

Answer 19

Price wars, predatory pricing, limit pricing

Question 20

What is predatory pricing

Answer 20

When a firm enters the market and an existing firm drives down prices so low that the new firm cannot make profit and leaves the market

Question 21

What is limit pricing

Answer 21

Setting prices low to prevent new entrants

Question 22

Types of non-price competition

Answer 22

Advertising, branding, quality, customer service

Question 23

Oligopoly efficiencies?

Answer 23

Productive -no
Allocative-no
Dynamic-yes

Question 24

Characteristics of monopoly (2)

Answer 24

1. Only one seller
2. High barriers to entry

Question 25

What is price discrimination

Answer 25

When monopolists charge different prices to different people for the same good

Question 26

Draw price discrimination diagrams

Answer 26

(Check online)

Question 27

What is a natural monopoly

Answer 27

Least inefficient to only have one firm in the market

Question 28

Monopoly efficiencies?

Answer 28

Productive-no Allocative -no Dynamic-yes X-inefficient-yes

Question 29

What is a monopsony

Answer 29

Where there is only one buyer in the market

Question 30

Benefits of a monopsony to firms

Answer 30

Monopsony gains higher profits, can achieve purchasing economies of scale

Question 31

Characteristics of contestable markets

Answer 31

1. Perfect knowledge 2. Freedom to enter or exit 3. Low product loyalty

Question 32

Contestable markets efficiency?

Answer 32

Likely to be productively and allocative efficient