Market Structures Flashcards

Question

Advantages Of A Monopsony

Answer 1

- Reduced supply costs can reduce the costs the consumer pays (increasing consumer utility) - Reduced supply costs can increase profits of a firm for R&D - Firms can ensure greater control over suppliers (dictate contract terms and quality standards)

Answer 2

Lower Wages (can increase inequality and worsen living standards) Reduced Supplier Profits reduce the ability to invest in R&D (for supplier) Efficiency Wage Theory Suppliers may cut costs to survive the reduced revenue - leading to a worsening quality of goods and services

Answer 3

Services are provided at cost and not for profit - increasing affordability (crucial for merit good) Externalities can be prevented as the government can produce at a point that maximises social welfare Governments are less likely to cut jobs for short term profits ALLOCATIVE EFFICIENCY (CHARGE WHERE P=MC) Natural Monopoly Efficiency (High sunk costs and low marginal costs mean that economies of scale are best exploited with single provider)

Answer 4

X-Inefficiency (no profit motive creates less of an incentive to cut costs and produce as efficiently as possible Dynamic Inefficiency without competition Governments may care more about re-election than efficiency so they may keep a failing factory open for voting support - causing market distortion by allowing inefficient firms to allocate resources

Answer 5

Increased Dynamic Efficiency through retained profits and reduced X-inefficiency Improved quality and consumer choice through competition Reduced fiscal burden to the government (often nationalised industries obtain debt due to x-inefficiencies) which allows for money investment into capital spending and education

Answer 6

Firms aim to maximise profits and not social welfare, causing P>MC which reduces consumer surplus and social surplus NO ALLOCATIVE EFFICIENCY Externalities may arise as the firms do not produce at the socially optimal point (MSB=MSC) and will produce where (MR=MC) which can cause an over/under consumption of resources

Answer 7

Can mitigate monopoly power by preventing exploitative pricing Promotes Competition (improving quality and leading to reduced prices) + reduces X-inefficiency Can implement safety standards to ensure goods are of sufficient and consistent quality

Answer 8

Regulatory Capture (regulators act in the interest of the industry and not consumers) Excessive profit caps and competition policy reduce SNP for R&D (harms dynamic efficiency, leading to higher costs in the long run, causing long run higher prices) Price Controls can cause shortages and subsidies can cause overproduction (waste of resources that could have been used elsewhere)

Answer 9

When the government or large firms invite bids from suppliers to provide goods and services, selecting the best offer based on price, quality and efficiency

Answer 10

Competition to win the bid drives down prices, allowing the government to have more money to spend elsewhere Firms innovate to win bids as the higher quality of the goods/service will make the bid more competitive to the government Access to expertise, governments can hire specialists leading to more efficient management which can reduce X-inefficiency and eliminate bureaucratic inefficiencies by outsourcing to specialists and allow the quality of the final good to be optimal

Answer 11

Firms may sacrifice quality for a low price as in order to offer a low price and stay profitable, the firm must keep costs low meaning the firm may not use expensive but efficient technologies (this can lead to,safety hazards and negative externalities) Risk Of Corruption - Government contracts may favour politically connected firms, meaning the firm that can produce most efficiently may not the bid, meaning the taxpayer pays an unnecessarily high price