Micro themes Flashcards
(25 cards)
Demand and supply
price mechanism -consumer surplus producer surplus
PED
impact of taxation and subsidies
XED
complementary and substitute goods
PES
short run vs long run supply responses
market failure, gov intervention, gov failure
externalities , public goods, merit/demerit goods
negative externalities
e.ge pollution
justification for taxes and regulation
pollution permits
tragedy of commons , nudge policies , behavioural economics
positive externalities
e.g. education case for subsidies , nudge policies, behavioural vs traditional economics
public goods
free rider problem justification for government provision
government failure
unintended consequences e.g. tax avoidance, regulatory capture
market structures
efficiency , long run vs short run, characteristics and contestability
monopoly power
price discriminartion 3rd degree segment market inelastic and elastic pef and impact on consumer surpus converted into revenue
oligopoly
tacit or formal collusion piirce wars interdependece and price stability represented by kinked demand curve
contestability
sunk costs and barriers to entry competition policy and hit and run
effectiveness of tax, subsidy, maximum minimum price
depends on the price elasticity of demand of the good or service for example being taxed
e.g sugar is addictive so inelastic demand
market structure essays
price set by firms in market structures can depend on objectives as assumptions don’t account for brand image or market share. Therefore degree of social welfare loss maybe reduced
In response to economies of scale
this depends on the size of a firm. If a firm grows to large then it can suffer from diseconomies of scale due to lack of communication control or coordinating between different workers. This could lead to higher long run average costs leading to higher prices.
Any externality argument leading to intervention (e.g. taxes, subsidies, max/min prices, regulations, state provision).
This depends on the government identifying the socially optimum level of e.g. healthcare correctly. Based on value judgements. Underestimate leading to welfare loss from the externality remaining.
government failure
when government intervention leads to a misallocation of resources.
in response to changes in costs of production
it depends on the proportion of firm’s costs
for example an increase in wage may not automatically lead to unemployment as the firm may have higher energy costs which are able/needed to be reduced.
minimum wage and trade unions
depends on density of trade unions
while 48.6 per cent of the public sector are part of trade unions only 12 per cent of the private sector are so less bargaining power in the private sector. less impact of strikes
most market structure essays part 2
depends on how firms allocate supernormal profit e.g. profits go to shareholder dividends instead of investment can reduce the extent of dynamic efficiency benefits
e.g. apple allocates 25% profits to dividends quite high share reducing amount of quality improvement or cost reducing
The level of a policy used for any policy
For example a pirce cap/maximum price is set too high it will have little effecting the abuse of market power.
This could occur due to regulatory capture, where regulators are incentivised to water down regulation because of future work with the regulator.
price caps
An effective way to control market power if set correctly
All polices where elasticities matter and refer to short run and long run
Time frame needs to be considered as in the short run the PED dfr sugar may be inelastic but in the long run it could changes as substitutes enter the market so taxes may be more beneficial in the long run compared to short run.
