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AQA MicroEconomics > Market Structure > Flashcards

Market Structure Flashcards

1
Q

What is the spectrum of competition ?

A

perfect competition —> monopolistic competition —-> oligopoly —–> monopoly

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2
Q

Objectives Of Firms

A

Profit Max (MC=MR)
Profit Satisficing
Revenue Max
Sales Max

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3
Q

Why would you profit max ?

A

Re- investment (R&D)
Shareholders and Dividends
Lower Costs & Lower prices for consumers
Reward for Entreprenurship

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4
Q

What are the problems with profit max ?

A
  • Under greater scrutiny as for charging high prices
  • Profits may not be split equally
  • MC =MR ( people have imperfect information)
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5
Q

What is profit satisficing ?

A

Profit Satisficing is the act of sacrificing profit to satisfy key stakeholders

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6
Q

Define Revenue maximisation

A

Marginal Revenue = Demand

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7
Q

Why would a firm revenue max ?

A

They may want to achieve economies of scale, predatory pricing is existing to drive out competition etc

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8
Q

What is sales max ?

A

Sales max is when the aggregate cost is equal to aggregate demand.

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9
Q

Why would a firm sales max ?

A
  • To encourage economic growth (EOS)
  • Flood the market
  • Limit Pricing ( drive competition out )
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10
Q

What are the other objectives of firms ?

A

Survival , Public Sector Organisation

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11
Q

What is perfect competition ?

A

Perfect competition is when consumers and producers have full and symmetric information

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12
Q

What is the characteristics of perfect competition ?

A
  • Many buyers and sellers
  • Homogenous goods –> firm is price taker
  • No barriers to entry/exit
  • Perfect Information
  • Firms are Profit Max (MC=MR)
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13
Q

What happens to profits in the short-run ?

A

In the short run , supernormal profits only exist in the short -run

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14
Q

What happens to profits in the long-run in a perfectly competitive market ?

A

In the long run , the supply move to the right due to the supernormal profits. This causes the price fall, which will lead to normal profit

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15
Q

What is the efficiencies achieved of perfect competition ?

A
  • Allocative Efficiency is achieved
  • Productively Efficiency is achieved
  • X-efficiency is achieved
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16
Q

What is monopolistically competition ?

A

Monopolistically competitive markets are defined by product differentiation and non-price competition

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17
Q

What happens in the short run for monopolistic competition ?

A
  • MC = MR as firms profit maximise. When there are supernormal profits ,entrants are attracted so supply increases
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18
Q

What happens in the long run in a monopolistic competitive market?

A

When there is an increase in the amount firms and supply in the industry , the demand and AR curve for the individual firms shifts to the left. The firms still operate at MC=MR

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19
Q

What is the pros of monopolistic competitive market ?

A

Markets are contestable , differentiation and diversity

20
Q

What is the cons of monopolistic competitive ?

A
  • Differentiation
  • Allocative and Productively inefficiency
21
Q

What is an oligopoly ?

A

An oligopoly is a market structure in which a few large firms dominate the industry in which each firms have significant power

22
Q

What is the characteristic of oligopoly?

A
  • High barriers to entry & exit
  • High concentration ratio
  • Interdependence
23
Q

What is a cartel ?

A

A cartel is a collusive agreement by firms , usually to fix prices

24
Q

What is tacit collusion?

A

Tacit collusion is informal (price leadership and price wars)

25
What is overt collusion ?
Overt collusion is usually formal ,usually secret, agreements among competitors
26
What is price leadership?
The setting of prices in a market ,usually by a dominant firms
27
What is price aggrement ?
Price agreement is an agreement is between firms regarding the pricing of goods
28
What is limit prices ?
Prices set low enough to make it unprofitable for other firms to enter the market
29
Define Predatory Prices
Predatory prices are prices set below average costs to force rival firms out of business
30
What does the basic model of monopoly suggest?
Higher prices and profits will lead to a misallocation of resources compared to a competitive market
31
What is monopoly power influence by ?
- Barriers to entry - No of competitiors - Advertising
32
How is dynamic efficiency achieved in a market ?
The supernormal profit is achived and can be used for R&D increasing dynamic effiency
33
Define Price Discrimination
Price Discrimination is when different consumers are charged different prices for the same product or services often with prices they are willing to pay
34
What are the three conditions of price discrimination?
- Identify different groups of costumers or sub markets for the product - Different elasticities of demand for different consumers - Must prevent seepage (resell)
35
What is first degree price discrimination ?
All consumers are charged the exact price they are willing to pay up , meaning there is no consumer surplus at all
36
What is second degree discrimination ?
When prices are dropped in the case of excess supply ( eg off peak )
37
What is third degree price discrimination ?
When different groups of consumers show different PEDs
38
What are the pros of price discrimination ?
- Firms can maximise revenue , enabling firms to stay in business , profits can be used for R&D - Some consumers benefit from lower fares
39
What is the cons of price discrimination ?
- Consumer surplus falls - Some consumers get exploited - Allocative Ineffiency - Admin Costs
40
What is the pros of competitive markets ?
- Perfect Knowledge - Max consumer surplus and economic welfare - Allocative and Productive Effiency achieved
41
What is the cons of competitive markets ?
- Very unrealistic, completely disregards the behaviour economics - lack of profits so therefore dynamic effiency is not achieved
42
What is creative destruction ?
Refers to when new technological and innovations replace older ones
43
What are the pros of creative destruction ?
- An incentive for incumbent firms to keep costs low and invest in development
44
What is the cons of creative destruction?
- Structural unemployment - Ineffiences in redistributing resources
45
What is hit-run competition ?
New entrants can join a market, make profits and leave
46
Define sunk costs
Costs that cannot be recovered
47

AQA MicroEconomics (5 decks)

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