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Economics Theme 3 A Level > Market Structures > Flashcards

Market Structures Flashcards

1
Q

What is allocative efficiency?

A

Resources distributed to goods consumers want, maximising utility. P=MC

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2
Q

What is productive efficiency?

A

Firms produce at lowest point on the average cost curve. (Where MC=AC)

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3
Q

What is dynamic efficiency?

A

Where all resources are allocated efficiently over time and rate of innovation is optimum.

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4
Q

What is x-inefficiency?

A

Producing outside of the AC boundary.

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5
Q

What are the characteristics of perfect competition?

A
  • Many buyers and sellers
  • Freedom of entry and exit
  • SR = profit maximisers
  • Perfect knowledge
  • homogenous products
  • price takers
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6
Q

What are the advantages of perfect competition?

A
  • Allocative efficiency
  • Productive efficiency
  • SR = Dynamic efficiency
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7
Q

What are the disadvantages of perfect competition?

A
  • LR = no dynamic efficiency

- Not a realistic model

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8
Q

What are the characteristics of monopolistic competition?

A
  • No barriers of entry or exit
  • Many buyers and sellers
  • Non-homogenous products
  • imperfect knowledge
  • price makers
  • imperfect competition
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9
Q

What are the advantages of monopolistic competition?

A
  • Allocative inefficiency
  • Realistic model
  • Productive inefficiency
  • SR = Dynamic efficiency
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10
Q

What are the disadvantages of monopolistic competition?

A
  • LR = No dynamic efficacy

- X-inefficiency

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11
Q

What are the characteristics of an oligopoly?

A
  • High barriers of entry and exit
  • high concentration ratio
  • interdependence of firms
  • product differentiation
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12
Q

Why might firms collude in an oligopoly?

A
  • Spend less on research and development
  • economies of scale
  • increase standards
  • increase investment
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13
Q

Why might firms not collude in an oligopoly?

A
  • loss of allocative efficiency
  • high average production costs
  • increased monopoly power
  • loss of consumer surplus
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14
Q

What types of collusion are there in an oligopoly?

A
  • Overt ; formal agreement

- Tacit ; implied

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15
Q

What is a cartel?

A

Businesses controlling the price along with output in order to maximise profits.

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16
Q

What is a price leader?

A

A firm that changes the price, resulting in others following.

17
Q

What are the types of price competition in an oligopoly?

A
  • Price wars
  • predatory pricing
  • limit pricing
18
Q

What are the types of non-price competition in an oligopoly?

A
  • special offers
  • adverts
  • branding
  • loyalty
19
Q

What are the characteristics of monopolies?

A
  • price maker
  • price discrimination
  • sole seller or 25% market share
  • high barrier of entry and exit
  • abnormal profits in the short and long run
20
Q

What is third degree price discrimination?

A

To charge different groups of consumers different prices for the same good

21
Q

What are the benefits and disadvantages of third degree price discrimination for consumers?

A

Advantages:
- cross subsidises = lower prices
- positive externality
Disadvantages:
- Loss of consumer surplus = allocative inefficiency
- Higher price in long run = monopoly power

22
Q

What are the benefits and disadvantages of third degree price discrimination for producers?

A 
Advantages: 
- Better use of spare capacity 
- abnormal profits
- ability to cross subsidies 
Disadvantages: 
- costly to divide market = limits benefits 
- CMA involvement
23
Q

What are the advantages of monopolies to firms, consumers, employees and suppliers?

A
  • Increased government revenue
  • decreased average cost of production
  • export revenue
  • more efficient (natural monopoly)
  • high innovation = high barriers of entry
  • dynamic efficiency in the long run
24
Q

What are the disadvantages of monopolies to firms, consumers, employees and suppliers?

A
  • No choice
  • Misallocation and inefficiency
  • Exploits consumers due to less allocative efficiency
  • keeps production costs high
  • loss of consumer surplus
25
Q

What are the characteristics of a monopsony?

A
  • Sole buyer
  • supplier power
  • price maker
  • profit maximiser
26
Q

What are the advantages and disadvantages of monopsonies?

A 
Advantages: 
- lower prices
- monopsony saves money
Disadvantages: 
- suppliers get normal profits and have unproductive workers due to low wages.
27
Q

What are the characteristics of contestable markets?

A
  • No sunk costs
  • access to technology
  • low consumer loyalty
28
Q

What are the implications of contestable markets for the behaviour of firms?

A
  • allocative and productively efficient

- takes abnormal profits and leaves

29
Q

What is contestability?

A

The ease at which new firms can enter and leave a market

30
Q

What are sunk costs?

A

Costs that can’t be recovered once spent

Economics Theme 3 A Level (6 decks)

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