3.4 Market Structures Flashcards
(19 cards)
What is Allocative Efficiency?
Allocative efficiency is a state of the economy in which production is aligned with the preferences of consumers and producers; in particular, the set of outputs is chosen so as to maximize the social welfare of society.
What is Productive Efficiency?
Productive efficiency: A firm has productive efficiency when its products are produced at the lowest average cost so the fewest resources are used to produce each product. The minimum resources are used to produce the maximum output. This can only exist if firms produce at the bottom of the AC curve, in the short run this is where MC=AC.
What is Dynamic Efficiency?
Dynamic efficiency: This is achieved when resources are allocated efficiently over time. It is concerned with investment, which brings new products and new production techniques.
- Dynamic efficiency will be achieved in markets where competition encourages innovation but where there are differences in products and copyright/patent laws.
What is X-Inefficiency?
X-inefficiency is a concept used in economics to describe instances where firms go through internal inefficiency resulting in higher production costs than required for a given output.
What are the features of Perfect Competition?
- There must be many buyers and sellers.
- There must be freedom of entry and exit from the industry.
- There must be perfect knowledge.
- The product must be homogenous.
What are the features of Monopolistic Competition?
- There must be a large number of buyers and sellers.
- There are no barriers to entry and exit.
- Differentiated goods.
What type of profit can Perfect Competition make in the Long Run?
Normal Profit.
What type of profit can Monopolistic Competition make in the Long Run?
Normal Profit.
What are the features of Oligopolistic Competition?
- Differentiated goods.
- High Concentration Ratio.
- Interdependent firms.
- Barriers to entry.
What is Collusive Behaviour?
Collusion is when firms make collective agreements that reduce competition . When firms don’t collude, this is a competitive oligopoly.
What is a Cartel?
A formal collusive agreement is called a cartel, which is a group of firms who enter into agreement to mutually set prices. The rules will be laid out in a formal document which may be legally enforced and fines will be charged for firms who break these rules.
What is a Barometric Firm Price Leader?
Where a firm develops a reputation for being good at predicting the next move in the industry and other firms decide to follow their leader.
What is Game Theory?
Game theory explores the reactions of one player to changes in strategy by another player. The aim is to examine the best strategy a firm can adopt for each assumption about its rival’s behaviour and it provides insight into interdependent decision making that occurs in competitive markets.
What is First-Degree Price Discrimination?
First-degree is when a seller charges all buyers the highest price and allows for reductions.
What is Second-Degree Discrimination?
Second-degree is when a seller changes price depending on the quantity purchased.
What is Third-Degree Price Discrimination?
Third-degree is when a seller charges different prices for different consumer groups based on a specific attribute.
What is a Natural Monopoly?
A natural monopoly is a type of monopoly in an industry or sector with high barriers to entry and start-up costs that prevent any rivals from competing.
- For example, London Underground.
What is a Monopsony?
This is where there is only one buyer in the market.
- For example, the NHS.
What are the features of a Contestable Market?
- Perfect knowledge.
- Freedom of entry and exit.
- No sunk costs.
- Low product loyalty.
