Micro Econ

Question 1

Impact of technological change

Answer 1

increase productivity, decrease costs, increase contestability, affect methods of production and create new products/services.

Question 2

Price wars

Answer 2

When firms undercut each other with lower prices to steal the other firms’ consumers.

Question 3

Collusive Oligopoly

Answer 3

Firms in an oligopoly industry set the same prices. Tacit or Overt collusion. Example: OPEC

Question 4

Legal monopoly

Answer 4

> 25% market share

Question 5

Disadvantages of Monopolies

Answer 5

Restrict choice

Question 6

Dead-weight loss

Answer 6

Potential economic welfare lost

Question 7

Perfect competition assumptions

Answer 7

Many producers and consumers
No barriers to entry
Perfect Information
Price Takers

Question 8

Predatory Pricing

Answer 8

Aggressively cuts its prices below AVC incurring a short run loss to force out competitors in the long run and dominate market

Question 9

Innovation vs Invention

Answer 9

Innovation is the application of new knowledge created by invention to production.

Question 10

Profit Maximising

Answer 10

MC=MR

Question 11

Revenue Maximising

Answer 11

MR=0

Question 12

Allocative efficiency

Answer 12

When welfare is maximised at MC=AR

Question 13

Productive efficiency

Answer 13

Average total cost is at its lowest, where MC = AC

Question 14

Impacts of creative destruction

Answer 14

SRAS and LRAS will shift right. Lower COP = Higher productivity.
New technology = Increase productiivity

Question 15

Profit satisficing

Answer 15

Satisfy influencers, but then pursues other objectives

Ex: John Lewis –> partnership –> profit amongst employees

Question 16

Market failure and types

Answer 16

price mechanism/invisible hand leads to misallocation of resources. Leads to a price or quantity that is not best for society.

Public goods
Externalities
Information gaps

Question 17

Free rider problem

Answer 17

Benefiting from public goods without paying for them

Question 18

Monopoly assumptions

Answer 18

One firm in the market
Profit maximising
High barriers to entry

Question 19

Non-price competition

Answer 19

Advertising

Loyalty cards

Branding

Quality

Question 20

Sales-Maximising

Answer 20

AC=AR

Question 21

Price leadership

Answer 21

Tacit collusion –> firms follow price of leader

Question 22

Privatisation

Answer 22

Transfer of a public industry, or service to private ownership and control

Ex: British Telecom 1984

Question 23

Competitive Oligopoly

Answer 23

non-collusive oligopolies

Question 24

Oligopoly Assumptions

Answer 24

The market is dominated by a few large sellers

High barriers to entry/exit

Differentiated goods

Interdependence between firms

Question 25

Market Failure intervention

Answer 25

Price ceilings, price floors, taxes, subsidies, information provision

Question 26

Government failure

Answer 26

Intervention fails: Distortion of price mechanism Unintended consequences Administration costs Information gaps

Question 27

Legal Barriers

Answer 27

Patents, Trademarks and copyright. Incumbent firms can legally prevent new firms from entering their market.

Question 28

Sunk costs

Answer 28

Costs that cannot be recovered

Question 29

High sunk costs

Answer 29

Deters new firms from entering because firms know that if they fail, they won’t be able to recover any of their sunk costs

Question 30

Economies of scale (Barrier to entry)

Answer 30

Incumbent firms can keep their costs and prices low, creating a barrier to entry because smaller new firms without economies of scale can’t compete on price

Question 31

Types of internal economies of scale

Answer 31

Risk-bearing managerial financial purchasing technical marketing

Question 32

Advantages of monopolies

Answer 32

Natural monopolies Dynamic efficiency

Question 33

Natural monopolies

Answer 33

Most efficient to have just one firm in the market

Question 34

Conditions of price discrimination

Answer 34

Market Power Information Limit Reselling

Question 35

Monopolistic competition assumptions

Answer 35

Many small buyers and sellers Low barriers to entry and exit Differentiated products

Question 36

Marginal physical product of labour

Answer 36

The output produced by each extra worker

Question 37

Marginal revenue product of labour

Answer 37

Marginal revenue multiplied by marginal physical product

Question 38

Factors of elasticity of demand for labour

Answer 38

Substitute workers % of total costs Time

Question 39

Factors of elasticity of supply for labour

Answer 39

Skills and Qualification Unemployment Levels Time

Question 40

Monopsony

Answer 40

One buyer in the market

Question 41

Trade union

Answer 41

Group of workers who collectively bargain to improve employee welfare Ex: NUT

Question 42

Occupational immobility

Answer 42

Workers can’t move between different jobs (or occupations) because they lack the skills needed

Question 43

Wage Differential

Answer 43

Result of economic factors

Question 44

Social costs

Answer 44

Private costs + External costs