market structure

Question 1

efficiency meaning

Answer 1

used to judge how well the market allocates resources

Question 1

static efficiency meaning

Answer 1

efficiency at one period of time
made of allocative and productive efficiency

Question 2

allocative efficiency meaning

Answer 2

quantity set at AR=MC
resources are used to produce goods and services which consumers want and value most highly and social welfare is maximised

Question 3

dynamic efficiency meaning

Answer 3

efficiency over time
causes innovation and research and development

Question 4

productive efficiency meaning

Answer 4

firm produces at the lowest average cost

Question 5

x inefficiency meaning

Answer 5

firm fails to minimise its average cost at a given level of output

Question 6

social efficiency meaning

Answer 6

MSC=MSB so there is no external cost from an economic transaction

Question 7

characteristics which determine market structure

Answer 7

barriers to entry/ exit
if goods are differentiated or homogenous
how much knowledge a firm shares
interdependence

Question 8

perfect competition meaning

Answer 8

market structure where there are
many buyers and sellers
no barriers to entry / exit
homogenous goods
perfect information

Question 9

short run vs long run in perfect competition

Answer 9

super normal profits attracts new firms into market
shifts S to the right until no more incentive to enter

if there are subnormal profits firms will leave the market and S shifts to the left until no more incentive to leave

Question 10

pro of perfect competition

Answer 10

allocative efficiency, productive efficiency, dynamic efficiency are possible in short run

Question 11

con of perfect competition

Answer 11

no dynamic efficiency in lonng run as no super normal profits
small firms no economies of scale
model vs reality
perfect info hard to achieve

Question 12

monopolistic competition meaning

Answer 12

where large number of small firms produce slightly differentiated products with no barriers to entry

Question 13

assumptions in a monopolistic market

Answer 13

no barriers to entry/ exit
low concentration ratio- many firms operating in market so change in price by one firm has little effect on demand for rival products
differentiated goods

Question 14

ev for monopolistic market

Answer 14

imperfect information
different firms have different sizes and different cost so not all will work where they make supernormal profits
firms will come and go so unstable market

Question 15

oligopoly meaning

Answer 15

market dominated by few large firms

Question 16

assumptions in oligopoly

Answer 16

high barriers to entry/ exit
high concentration ratio- 7 firms with &)% market share
differentiated goods
interdependence

Question 17

why won’t firms increase prices in an oligopoly

Answer 17

their good will become elastic and other firms will undercut them so they would lose revenue

Question 18

why won’t firms decrease prices in an oligopoly

Answer 18

there good becomes more inelastic and they get more demand but other firms will undercut them to maintain market share leading to a price war

Question 19

collusion meaning

Answer 19

when firms make a collective agreement that reduces competition
fix quantity or price

Question 20

over collusion meaning

Answer 20

formal agreement
legal collusion

Question 21

tacit collusion meaning

Answer 21

aim to reduce competition
illegal

Question 22

con of collusion

Answer 22

loss of consumer welfare as increase in P and decrease in Q
lack of competition so inefficiencies and quality decrease
increases barriers to entry
illegal- 10% of turn over
cheating the quota- firms can undercut each other for more profit

Question 23

pro of collusion

Answer 23

increases profits
invest money into quality
saves on research and development
higher producer surplus

Question 24

conditions for collusive oligopoly

Answer 24

small number of firms barriers to entry prevent new firms monitoring to prevent under cutting homogenous goods so there is less choice PED inelastic

Question 25

game theory meaning

Answer 25

reactions of one firm to a change in strategy of another firm

Question 26

dominant strategy meaning

Answer 26

optimal move for an firm regardless of how other firms act

Question 27

nash equilibrium meaning

Answer 27

optimum behaviour of firms where both of them make optimum profits

Question 28

price wars meaning

Answer 28

firms constantly undercutting prices decreasing profits

Question 29

predatory pricing meaning

Answer 29

firms setting low prices to drive out firms (illegal)

Question 30

limit pricing meaning

Answer 30

setting low prices to discourage new entrants

Question 31

non price competition meaning

Answer 31

aim to increase loyalty and make demand more inelastic quality of good quality of customer service special offers advertising innovation

Question 32

monopoly meaning

Answer 32

when there is one dominant producer in a market

Question 33

assumptions of a monopoly

Answer 33

sole market supplier high barriers to entry no substitutes imperfect info high sunk costs

Question 34

price discrimination meaning

Answer 34

when a supplier charges different groups of people different prices

Question 35

conditions for price discrimination

Answer 35

separate consumers into groups that have different elasticities able to control supply prevent markets from c

Question 36

legal monopoly meaning

Answer 36

continuous monopoly protected by law

Question 37

natural monopoly meaning

Answer 37

where economies of scale are so large that there is only room for 1 supplier in market

Question 38

natural monopoly effect on firms/ workers

Answer 38

pro: SNP made compete overseas maximum EOS so little costs higher wages con: might not profit maximise lack of competition leads to inefficiencies low output so less workers

Question 39

natural monopoly effect on consumers

Answer 39

pro: net welfare gain due to cross subsidisation- more equality greater range of goods - more profits - innovation con: higher price lower quantity less choice as only one producer

Question 40

monopsony meaning

Answer 40

when there is only one buyer in the market

Question 41

conditions for a monopsony

Answer 41

one buyer firm pay lowest possible price to minimise cost firm sets price

Question 42

pro of monopsony

Answer 42

lower price = more profits = innovation lower prices higher profits purchasing economies of scale

Question 43

con of monopsony

Answer 43

suppliers lose out on profits employees lower wages as only one labour demander (ev, trade unions and may have higher wages with more profits) unproductive labour because of low wages fall in quantity due to lower price

Question 44

perfectly contestable market meaning

Answer 44

perfect info freedom of entry and exit low sunk cost perfect info - best tech used low product loyalty firms maximise profits in short run

Question 45

types of barriers of entry and exit

Answer 45

legal- laws to make it more difficult to enter marketing- high ads so consumer loyalty pricing- limit/ predatory pricing economies of scale- new firms cannot produce at the same AC as large firms

Question 46

factors promoting contestability

Answer 46

online markets deregulation tougher competition laws