Micro Economic Factors Flashcards
CHAPTER 5 (25 cards)
Describe perfect competition
- Many small (in value) B & S, individually can’t influence market price
- No barriers to entry
- Perfect information
- Homogeneous product
- No collusion between B & S
- Price takers
- Earns normal profit
- Single selling price
Monopolistic competition
- Many B & S
- Some differentiation between products
- Branding of product
- Some (not total) customer loyalty
- Few barriers to entry
- Significant advertising
- Increase in prices cause loss of some customers
- Only normal profit earned in the LT
Monopoly competition
- Only one producer
- Very high share of the market
- Price makers
- Super-normal profits
Oligopoly
- Few dominant producers
- High level of influence
- High level of knowledge on their competitors’ strategies
- Complex product differentiation
- High barrier to entry
- Significant influences over price
What do you call when there are only 2 firms in an oligopoly?
Duopoly
Explain substitute goods
- Increase in demand for one cause decrease in demand for another
Compliment goods
Tend to be bought & used together
Movement along the line in demand curve is caused by?
Price
Shifts of the demand curve is caused by?
Any of other factors than its price
including
- expected price in the future
Formula for PED
= Proportional change in quantity/ Proportional change in price
PED for perfectly inelastic
0
PED for perfectly elastic
Infinitely elastic
What are goods that have a positive PED unlike usual goods with negative PED
a) Giffen goods = basic items for which demand goes up when price rises bcs lack of close substitute
b) Veblen goods = Status symbol items
Income elasticity for income elastic good
> 1
Income elasticity for income inelastic good
0-1
Negatively income elastic good
Increase in income, demand actually falls = Inferior good
If a firm wishes to maximise profit, it will produce…
MC = MR
Supply curve starts when…
MC curve above average variable cost curve
Cost plus pricing
- Supply when AR>AC
- Adds profit margin to AC at any level of output
- Horizontal supply curve
Why marginal cost curve be upward sloping in the short run
Impact of diminishing return
–> As one factor of production is added while others remain , cause progressive decline of output
–> only a short run phenomena because the constraint of one factor of production being fixed is only short run
4 factors all organisation need to function
- People
- Objective
- Structure
- Management
Define utility
Pleasure/satisfaction /benefit derived by a consumer from consumption of goods & services
Marginal utility
Satisfaction from consuming one additional unit
What does acting rationally means in term of utility
Maximise total utility with a limited income
