8.0 - market equilibrium Flashcards
(14 cards)
explain the concept of market equilibrium
include the assumptions of equilibrium
8.1 - concept of market equilibrium
- no tendency for change in price or quantity (market clearence (no excess))
- pure competition in the market
- no gov. intervention
explain the tendency of the economy to approach equilibrium
8.2 - esablishing equilibrium
- excess demand (consumers bid up price)
- excess supply (businesses sell at lower price)
describe the dynamics of a product market
8.4 - role of the market
- demand (wants of individuals)
- supply (production of firms with limited resorces)
describe the dynamics of a factor market
8.4 - role of the market
- demand and supply determine the price of FOP’s and therfore, the share of the total output for consumers
describe the role of the market in providing a stable and growing economy
8.4 - role of the market
- market mechanism provides allocative efficiency
- competition of producers ensures customer responsiveness and efficient production
define market faliure
8.5 - government intervention in the market
when the market doesn’t produce the desired outcome
explain the society supply curve
8.5 - government intervention in the market
takes into account all costs of produtcion including envionmental and social costs. may have a different optimum price level than the market level (opposite of the private curve)
explain the types of government price intervention
8.5 - government intervention in the market
contribute to the distribution of income and ultimetly leads to disequilibrium.
- price ceiling (redistrubutes income from sellers to buyers)
- price floors (redistributes income from buyers to sellers)
explain the forms of government quantity intervention
8.5 - government intervention in the market
- negative externalities (market quantity too high)
artificial restriction through laws or taxes to reduce production or forcing individual businesses to pay for social costs of production (internalising the externality) - positive externalities (market quantity too low)
individuals neglect social benefits, gov. encourage consumption of merit goods, provide subsidies to lower prices and increase production
describe the nature and conditions of pure market competition
8.6 - competition and market power
- no individual firm can raise prices without losing all customers (no firm has market power)
conditions
- many small buyers
- buyers don’t incur costs from moving suppliers
- no barriers to firms in and out the market
- sellers sell infinite product at market price
- products are homogenous (basically the same)
explain how factors of market structure contribute to competition and market power
8.6 - competition and market power
- the no. and relative size of firms
- nature of the product sold
- ease of which firms can enter the industry
- a degree of market power results in higher equilibrium price and lower equilibrium quantity than perfect competition
describe the nature of a monopoly
8.6 - competition and market power
- only 1 firm selling, no market competition or close substitutes
- significant barriers to entering industry
- monopolist is price setter for maximum profits
- advertising to improve brand image
monopolistic competition
8.6 - competition and market power
- large no. of reletivly small firms
- slight product differentiation
- gives firms some degree of market power
- small barriers of brand loyalty in entering market
- advertising to attract and retain consumers
outline the nature of an oligopoly
(haha funnny name)
8.6 - competition and market power
- fewer reletivly large firms with significant market share
- product differentiation
- significant entery barriers
- firms must have conpetitive awareness of pricing and output policies
- large advertising competition for attraction
