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Economics > MICRO - Unit 4 > Flashcards

MICRO - Unit 4 Flashcards

1
Q

What are market structures?

A

is the number of firms within an industry and the way in which those businesses behave

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2
Q

What is the spectrum of competition?

A

monopoly - duopoly - oligopoly - monopolistic competition - perfect competition

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3
Q

What is the competition ratio?

A

tells us the number of firms that dominate the market

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4
Q

What are the features of perfect competition?

A
  • large number of producers in the market
  • no barriers to enter
  • firms are relatively small in size and sell to a large number of small buyers
  • all producers are price takers
  • each firm can sell all of its output at the current market price
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5
Q

What does the firm being able to sell all of its output at the current market price mean for perfect condition?

A
  • would not lower its price
  • If they did raise price it would sell nothing as buyers would go to another seller
  • means that the demand curve for each firm is price elastic i.e. horizontal
    D = AR
    Average revenue (total revenue/output) is always the same
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6
Q

What is imperfect competition?

A

is a type of market structure that exhibits some but not all elements of perfect competition

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7
Q

What are the differences between imperfect and perfect competition?

A
  • less firms in the market
  • some form of product differentiation
  • are at least some barriers to entry and exit
  • demand curve is downward sloping
  • suppliers can influence prices
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8
Q

When does monopoly occur?

A

when one firm dominates the market

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9
Q

When does oligopoly occur?

A

when a few firms dominate the market

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10
Q

When does monopolistic competition occur?

A

when there are many firms in the market but there is some form of product differentiation

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11
Q

What are the features of monopoly?

A
  • price leaders
  • new product development is not affected by competitors
  • use promotion to inform and persuade customers
  • can increase sales revenue through increasing market size
  • barriers to entry exist in monopoly markets that stop firms from entering the market
  • ## high costs to enter
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12
Q

Why are monopolies price leaders?

A

they can charge high prices but are often restricted from doing so by government regulation

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13
Q

When does a duopoly occur?

A

where there are only two firms in the market

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14
Q

What are the features of duopoly?

A
  • exploit consumers by charging high prices
  • similar barriers to entry that exist in monopoly markets
  • tend to compete on non-price competition such as promotion
  • accused of collusion - making agreements between each other that restrict competition
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15
Q

What are the features of oligopoly?

A
  • barriers to entry exist particularly through advertising
  • tend to compete on non-price competition such as promotion
  • take into account the reaction of competitors when making decisions regarding pricing
  • therefore unlikely to lower price as a long term strategy
  • spend heavily on new product development
  • branding is crucial and expensive marketing budgets are available
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16
Q

What are the features of monopolistic competition?

A
  • barriers to entry are very low - easy for firms to enter the market, creates strong competition
  • mix between monopoly power and competition leads to the term monopolistic competition
  • firms within this market will try to brand their product. This might be through the building up of a reputation
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17
Q

What are objectives?

A

long term goals which determine the guiding principles of a business

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18
Q

What are some goals for a business?

A 
SMART 
profit maximisation
survival
profit satisficing 
sales maximisation
revenue maximisation
market share
19
Q

What is profit maximisation?

A

reach highest levels of profit

20
Q

When does profit maximisation occur?

A

where the difference between total revenue (TR) and total cost (TC) is at its highest

21
Q

What is profit satisficing?

A

a level of profit below profit maximisation that satisfies the needs of the owners or managers of an organisation

22
Q

What does sales maximisation cause?

A

increase the size of the firm

23
Q

When does revenue maximisation occur?

A

at the point where marginal revenue = 0

24
Q

What is the main characteristic of perfectly competitive market?

A

the price is determined by the interaction of demand and supply

25
Q

What are the assumptions of the model of perfect competition?

A

large numbers of producers
identical products
freedom of entry and exit
readily available information

26
Q

What are the assumptions of perfect competition?

A
  • few if any barriers to entry to a market.
  • products are identical (homogenous).
  • consumers and firms have complete or perfect knowledge of all the products supplied by firms as well as their prices.
  • large numbers of buyers and sellers.
  • market eqm determines price.
  • buy and sell as much as they wish at the eqm price.
27
Q

Draw a price determination diagram

A

https://docs.google.com/presentation/d/1niOYDnIhuE5r0f6ZhiMggzsFHfhlQuvXIhG79Qh-9Ug/edit#slide=id.g4e2f63955b_0_268

28
Q

What are the advantages of perfect competition?

A
  • productive and allocative efficiency.

- goods and services produced at minimum average cost or when minimum inputs are used to produce maximum outputs.

29
Q

What is monopoly power influenced by?

A
  • barriers to entry
  • the number of competitors
  • advertising
  • degree of product differentiation
30
Q

What type of profit do monopolist make? and why?

A

supernormal - as it produces where AR is greater than AC

31
Q

What is market power?

A

is the ability of a firm to set price above marginal cost

32
Q

What are geographical monopolies?

A

due to climatic or geological reasons, a particular country or location is the source of supply of a raw material

33
Q

What are the 2 types of barriers?

A

natural barriers to entry

legal barriers

34
Q

What are natural barriers?

A

could be climatic, geographical or geological factors that make the product difficult to replicate elsewhere

35
Q

What are legal barriers?

A

copyrights and trademarks, gives an individual or firm a monopoly on a new product or process

36
Q

What are the advantages of monopolies?

A
  • economies of scale
  • lower costs can benefit society
  • large research and development budgets allowing for the development of new products that can benefit society (which can lead to product invention and innovation).
37
Q

When does production invention occur?

A

when an original product or process is created

38
Q

When does production innovation occur?

A

when a product or process that already exists is adapted

39
Q

When do natural monopolies occur?

A

when it would be too expensive for a number of competing firms to provide the same product

40
Q

Draw a LRAC curve for a pure monopoly

A

L-shaped https://docs.google.com/presentation/d/1EiC1_Bswgp7-F03-RVMM7wrS151ZXJd4QDIC7jr-naA/edit#slide=id.g4e2f63962e_0_330

41
Q

Why is the LRAC for a pure monopoly curved?

A

there are continual returns to scales

42
Q

What are the disadvantages of a monopoly?

A
  • removes competition due to barriers to entry
  • makes supernormal profits in the long run by charging higher prices than would occur under competitive markets (leads to the consumer being exploited)
  • is productively inefficient as it does not produce at the lowest point on its LRAC curve
  • is allocatively inefficient as it does not produce at the point where P = MC
  • can reduce choice and quality as there is no competition
43
Q

What will competition result in?

A
  • improved products
  • reduced costs ( try to be more effective)
  • improved quality of service provided

Economics (9 decks)

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