Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Zak copy econ > Micro Year 2 > Flashcards

Micro Year 2 Flashcards

1
Q

formula for marginal product

A

△total product /△quantity of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

formula for average product

A

total product/quantity of labour

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is meant by short and long run

A
  • short run: when atleast one factor of production is fixed
  • long run: when all factors of production are variable
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the law of diminishing marginal returns

A

in the short run when variable FOP’s are added to a stock of fixed FOP’s total/marginal product will first rise then will fall

only effects firms in the short run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what do we assume is the only way of increasing production in the short run for firms

A
  • as usually both land and capital will be fixed in the short run, labour is increased
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

under the law of diminishing marginal returns why would product initially increase

A
  • increase in labour productivity due to:
  • specalisation
  • underutalisation of factors of production (that are then properly utalised)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

under the law of diminishing marginal returns why would product decrease after the increase

A
  • decrease in labour productivity due to:
  • fixed factors of production constrain productivity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

when is total product maximised

A
  • when marginal product = 0
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what are the 2 types of costs

A
  • implicit & explicit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What are implicit costs

A
  • costs that firms don’t pay with money
  • implicit cost is just oppurtunity cost
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q
  • What are explicit costs
  • what are the 2 types of explicit costs
A
  • costs than require actual payment
  • fixed costs & variable costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are fixed costs
give examples

A
  • costs that do not vary with output
  • rent, salaries, intrest on lones
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

what are variable costs
give examples

A
  • costs that do vary with output
  • wages, utility bills, raw material costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

formulas for total fixed costs (TFC)

A
  • total costs - total variable cost
  • average fixed costs x quantity (of output)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Formula for average fixed costs (AFC)

A
  • total fixed costs/quantity (of output)
  • average costs - averagew variable costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

formula for average variable costs

A
  • total variable costs / quantity (of output)
  • Average costs - average fixed costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what are the only 2 costs that are not influenced by the law of diminishing marginal returns

A
  • total fixed costs
  • Average fixed costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Formula for marginal costs

A

△ total costs / △ quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

formulas for average costs

A
  • total costs / quantity
  • average fixed costs + average variable costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How and why does the law of diminishing returns affect marginal and average costs

A
  • cause a decrease in cost initially but then a dramatic rise in costs
  • at first, increased labour productivity (specalisation and under utalised FOP’s) so marginal and average costs decrease
  • then decreased labour productivity (constrained by fixed FOP’s) so marginal and average costs increase
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what is meant by scale/scaling up

A
  • when firms increase there factors of production in the long run (all factors are variable)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q
  • what are the different types of return to scale
  • what do they mean
A
  • Increasing Returns to Scale:
    ^occurs when increase in input leads to proportionally larger increase in output.
  • Constant Returns to Scale
    ^occurs when increase in inputs leads to equal increase in output.
  • Decreasing Returns to Scale
    ^occurs when increase in inputs leads proportionally less increase in output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what is the shape of the long run average cost curve (LRAC)

A

bucket diagram

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what are the 3 sections of a LRAC curve

A
  • increasing returns to scale
  • constant returns to scale
  • decreasing returns to scale
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what are the equations to find out the increasing, decreasing and constant returns to scale

A
  • %△output > %△input = increasing returns to scale
  • %△output < %△input = decreasing returns to scale
  • %△output = %△input = constant returns to scale

input refers to factors of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

why can businesses experience increasing and decreasing returns to scale

A
  • if firms experience economies of scale they can experience increasing returns to scale
  • if firms experience diseconomies of scale they can experience decreasinfg returns to scale
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is the minimum efficent scale
why is it important

A
  • the lowest level of output required to exploit full economies of scale
  • after this quantity costs cannot get any lower
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

what is meant by economies of scale
and diseconomies of scale

A
  • economies of scale: a reduction in long run average cost as output increases
  • diseconomies of scale: a increase in long run average cost as output decreases
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

what are the 2 types of economies of scale

A
  • internal
  • external
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are internal economies of scale

A
  • occur within a business, under the businesses control
  • ^businesses can exploit them as they get larger
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

what are the types of internal economies of scale

A
  • risk bearing
  • financial
  • managerial
  • technical
  • marketing
  • purchasing

Really Fun Mums Try Making Pies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

what is meant by managerial economies of scale

A
  • as a firm gets larger they can employ specalist managers
  • ^they can monitor and boost productivity of work force
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

How do economies of scale bring about lower average costs

A
  • AC = ↑TC/ ↑↑↑Q
  • while total cost will rise with all types of economies of scale the quantity produced will rise much faster giving a lower average cost
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What is technical economies of scale

A
  • by bringing in specalist machinary as firms get larger (↑productivity)
  • using their factory more efficently (↑producitivty)
  • employing more workers as a firm gets larger and then specalising them (↑productivity)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

what is purchasing economies of scale

A
  • firms as they grow are able to buy their raw materials in bulk (can negotiate unit discounts)
  • ^costs can be spread over a wider range of output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

what is meant by marketing economies of scale

A
  • as firms get larger they can bulk buy their advertising (negotiate unit discounts)
  • ^spread costs over wider range output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

what is financial economies of scale

A
  • as businesses get larger they can negotiate lower rates of intrest when they get a loan from the bank
  • ^the firm is reputable, profitable, a proven success
  • ^banks think firm is low risk and so more likely to give lower intrest rates
  • costs can be spread over a larger range of output (lower AC)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

What is risk bearing economies of scale

A
  • as firms get larger they can spread their risk (oppurtunity cost) over a larger range of output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q
  • what are external economies of scale
  • features of
A
  • economies of scale that do not occur within the firm but within the industry
  • businesses within the industry can benefit without having done anything
  • still occur because businesses grow in size
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

what are some examples of external economies of scale

A
  • better transport infrastructure
  • component suppliers move closer
  • R&D firms move closer
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

How doe external economies of scale reduce average cost

A

they reduce total cost
AC = ↓TC/Q

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

when would diseconomies of scale occur

A

when a business gets too big

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

what are the 4 major diseconomies of scale

A
  • control
  • communication
  • coordination
  • motivation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

how do diseconomies of scale increase average costs

A

AC = ↑↑↑TC / ↑Q
- they increase total cost faster then they increase productivity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

what is control diseconomies of scale

A
  • as a firm gets larger it gets much more difficult for managers to control the work force
  • productivity would suffer therefore quantity would
  • total cost would still be increasing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

what is communication diseconomies of scale

A
  • as a firm gets larger it is much harder to spread messages throughout the company
  • ^impact productivity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

What is coordination diseconomies of scale

A
  • coordinating different parts of the business gets much more difficult as you get larger (different departments)
  • impact productivity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
48
Q

What is motivation diseconomies of scale

A
  • as a firm gets larger as the firm gets more and more workers each worker is going to feel less and less valued (dispensable)
  • ^impact productivty
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
49
Q

formula for total revenue

A

Price x Quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
50
Q

Formula for average revenue

A

total rev / quantity
= to PxQ/Q so can cancel out Q so AR=Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
51
Q

formula for marginal revenue

A

△total revenue / △quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
52
Q

characteristics for perfectly competative market

A
  • many buyers and sellers
  • homogenous goods
  • firms are price takers
  • no barriers of entry/exit
  • perfect information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
53
Q

Characteristics for imperfectly competative market

A
  • few buyers and sellers
  • diffrentiated goods
  • firms are price makers
  • high barriers of entry/exit
  • imperfect information
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
54
Q

when is revenue maximisation

A

when MR = 0

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
55
Q

formula for total profit

A

total revenue - total cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
56
Q

what is the diffrence between economic profit and accounting profit

A
  • economic profit considers both explicit and implicit costs
  • accounting profit only takes into account explicit costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
57
Q

what is meant by normal profits

A
  • when economic profit = 0
  • minimum level of profit required to keep factors of production in that current use
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
58
Q

what is meant by super normal profits

A
  • positive economic profit
  • any profit made above normal profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
59
Q

what is sub normal profit

A
  • negative economic profit
  • any economic profit below normal profit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
60
Q

what are the conditions for sub, super and normal profits

A
  • AR=AC is normal
  • AR > AC is super normal
  • AR < AC sub normal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
61
Q

why do we assume the objectives of firms is profit maximisation

A
  • re-investment
  • dividends for shareholders
  • lower costs and lower prices for consumers
  • reward for entrepreneurship
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
62
Q

what are dividends
what are shareholders

A
  • a percentage of profits made by a company
  • shareholders are the owners of a company
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
63
Q

where does profit maximsation occur

A
  • MC = MR
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
64
Q

what are some reasons why a firm might not profit maximise

A
  • they dont know there MC and MR and so cant produce at that point
  • to avoide scrutinty from regulatory bodies (result of investigations usually bad for firms)
  • key stakeholders could be harmed
  • other objectives may be more appropriate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
65
Q

what is profit satisfycing

A
  • sacrificing profit to satisfy as many key stake holders as possible
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
66
Q

What problem of profit maximising does profit satisfycing over come

A
  • if a firm maximises profit too much it can harm key stake holders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
67
Q

what is a stakeholder
give some examples

A
  • any body with an intrest in how a business is performing
  • shareholders
  • managers
  • consumers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
68
Q

How could profit maximisation harm stakeholders

A
  • consumers could suffer high prices which could give the firm a bad reputation
  • workers could suffer lower wages in efforts to cut costs, workers could go on strike
  • environmental groups may not like it as costs can be cut and the environment could take a hit, could lead to protests
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
69
Q

where does profit satisfycing occur

A

occurs between any point between profit max and sales max

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
70
Q

why might a firm want to revenue maximise

A
  • economies of scale (rev max quantity higher than prof max price so can exploit more EOS and perhaps charge lower price)
  • predatory pricing (rev max price is lower than prof max price)
  • principle agent problem
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
71
Q

what is predatory pricer

A

when a firm undercuts is rival on purpose, sacrificing profit to do so in order to drive out competition from the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
72
Q

what is the principle agent problem

A
  • there is a divorce between ownership and control
  • shareholders and managers might have different opinions on what to do with business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
73
Q

when does sales maximisation occur

A

AC =AR

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
74
Q

why would firms sale maximise

A
  • to get the biggest you can possible be without making a loss
  • economies of scale
  • limit pricing
  • principle agent problem (managers might max sales to leverage better perks for job)
  • flood the market (loads of consumers become aware of your product, develop loyalty)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
75
Q

what is limit pricing

A
  • if you price at break even (normal profit) it takes away the incentive for new firms to enter the market
  • ^limiting competition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
76
Q

when might a firm use survival objective

A
  • could use in the short run when entering a hyper competative market
  • to try and spread brand awareness
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
77
Q

What would the objectives be for a public sector orginisation

A
  • there objective is always to maximise society/public intrest, max social welfare
  • would produce at AR=MC (D=S)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
78
Q

what is coorperate social responsibility

A
  • firms may persue cooperate social responsibility
  • ^recognice there social and ethical responsibility
  • ^could be giving to charity, producing sustainable, paying your workers/suppliers well, acting ethically (not testing on animals)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
79
Q

what is meant by barriers to entry/exit

A
  • any obstacle that prevents a firm from entering/leaving a market
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
80
Q

what are the different types of barrier to entry

A
  • legal
  • technical (industry specific barriers)
  • strategic (intimidatory tactics used by firms in the market)
  • brand loyalty
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
81
Q

what are some legal barriers to entry
how do they work as barries to entry

A
  • patents (how is a new firm going to compete if everything in the market is protected)
  • license/permits (you may need a license/permit in order to operate in market, could of run out or difficult to obtain)
  • red tape (excessive paper work could disincentivise entry to market)
  • standards/regulations (very costly to reach those)
  • insurance (need for insurance could be costly)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
82
Q

What is a patent

A
  • it allows you sole ownership and all rights over something that you have created
  • ^no other firm can copy your good/service without consent from patent holder
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
83
Q

what are some technical barriers to entry
how do they work as barries to entry

A
  • start up costs (could be high)
  • sunk costs (increase risk of entering market)
  • economies of scale (if existing firms have high EOS, have low prices, it could scare off new firms)
  • natural monopoly (makes sense to only have 1 firm in market, new firms can be driven out very easily)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
84
Q

what are sunks costs

A
  • costs that cannot be recovered when a firm leaves a market
  • advertising and hyper specalised machinary
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
85
Q

what are some strategic barriers to entry
how do they work as barries to entry

A
  • predatory pricing (pricing lower to drive out competition)
  • limit pricing (firms limit incentive to come into the market
  • heavy advertising
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
86
Q

What is heavy advertising
how does it work

A
  • advertisements that consume an inordinate amount of resources
  • if exisiting firms pay high amounts for advertising its gonna take new firms spending a high amount to try and compete with the level of advertising, making barriers to entry higher
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
87
Q

How does brand loyalty act as a barrier to entry

A
  • if existing firms have high brand loyalty it could discourage firms from entering the market as they won’t be able to take consumers from the exisitng firms and so risk to enter increases
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
88
Q

What else are barriers to entry/exit

A

sources of monopoly power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
89
Q

what are some examples of barriers to exit

A
  • under-valuation of assets (when trying to sell assests you would get much lower prices then what you bought them for so you hold out)
  • redundancy costs (costs to workers after shutting down, if high might stay open)
  • penalties (e.g. fines) for leaving contracts early (suppliers contract, utilatise contracts)
  • sunk costs (if high might hold off closing)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
90
Q

what are the 4 types of efficency

A
  • allocative efficency
  • productive efficency
  • X efficency
  • dynamic efficency
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
91
Q

where does allocative efficency occur
on a cost/rev graph as well

A
  • where D=S, MSB=MSC, MC=AR
  • where resources follow consumer demand
  • where society surplus is maximised
  • where net social benefit is maximised
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
92
Q

where does productive efficency occur
on a cost/rev graph as well

A
  • when a firm is operating at the lowest point on their AC curve
  • ^fully exploiting all potential economies of scale
  • MC=AC
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
93
Q

where does x efficency occur
on a cost/rev graph as well

A
  • occurs when firms are minimising waste
  • ^production on the AC curve (any point)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
94
Q

what firms might have x-inefficency
why might they have this

A

Monopolies:
- they lack competative drive
- ^complacency creeps in, X-inefficency could occur
- ^reducing x-inefficency could be difficult or unpopular such as cutting wages and taking away staff perks

Public sector firms
- they are not profit motivated
- x inefficency could occur as result

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
95
Q

what is dynamic efficency
where does it occur

A
  • the re-investment of long run super normal profit back into the business
  • firms have to make super normal profits in the long run
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
96
Q

whats the difference between static and dynamic efficencies

A
  • static efficenies (allocative, productive and X) occur at 1 specific production point
  • dynamic efficency occurs over time
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
97
Q

what is the consumer analysis for allocative efficency

A
  • resources follow for consumer demand
  • low prices
  • maximisation of consumer surplus
  • high choice
  • high quality
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
98
Q

what is the producer analysis for allocative efficency

A
  • retain or increase market share
  • stay ahead of rivals (who perhaps are as allocativly efficent)
  • increase profit
99
Q

what is the consumer analysis for productive efficency

A
  • lower prices (if lower AC passed onto consumers)
  • ^higher consumer surplus
  • full exploitation of economies of scale
100
Q

what is the producer analysis for productive efficency

A
  • more productive at lower AC
  • ^higher profit
  • lower prices and greater market share
101
Q

what is the consumer analysis for dynamic efficency

A
  • new innovative production
  • lower prices over time (new production techniques)
  • ^higher consumer surplus as more competative market as lower prices over time
102
Q

what is the producer analysis for dynamic efficency

A
  • long run profit maximisation
  • ^lower costs over time (reinvestment improves efficency)
  • retain/increase market share
  • stay ahead of rivals (can get patents/licenses/permits to create monopoly power)
103
Q

what is consumer analysis for x efficency

A
  • low prices
  • higher consumer surplus
104
Q

what is producer benefits of x efficency

A
  • lower costs
  • ^higher profits
  • ^lower prices and increase/retain market share
105
Q

what is the long run equilibirum definied as in perfect competition

A
  • when normal profits are being made
  • ^any profit outside normal being made is short run
106
Q

what are the efficencies of perfect competition

A
  • in the long run there is allocative efficency as AR=MC (resources are perfectly following consumer demand, prices are low, consumer surplus, quantity, choice are all high
  • in the long run there is productive efficency (full expolitation of EOS
  • in the long run there is x efficency, if they are productive efficency then it must have x efficency (they are minimising waste and costs)
  • they are not dynamic efficent (consumers may not see innovitation over time or new tech, producers may not be able to lower costs over time)

if not static efficencies they will not survive in the market

107
Q

when should firms consider shutdown

A
  • AR(average rev) = AVC (average variable costs)
108
Q

when should a firm actually shutdown

A
  • AR < AVC
109
Q

what is the break even condition

A
  • AR(average rev) = AC(average costs)
  • its the same as normal profit
110
Q

what is the condition for a firm in perfect competition to continue production in the short run even while making a loss

A

AR > AVC

as can pay off variable costs, extra rev used to pay some fixed cost

111
Q

what are the characteristics of a monopoly market

A
  • one seller dominating the market
  • differentiated products
  • firm is a price marker
  • high barriers to entry/exit
  • imperfect information
  • firm is a profit maximiser
112
Q

whats the difference between a pure monopoly and monopoly power

A
  • pure monopolys is 1 firm with 100% market share
  • monopoly power is when a firm has 25% market share and over
  • ^also called legal monopoly (not same as natural monopoly)
113
Q

what are the efficencies of monopoly markets

A
  • not allocatively efficent
  • not productively efficent
  • x inefficency assumed
  • dynamically efficent
114
Q

what can the analysis of the efficencies of monopoly markets be
(mind map)

A
  • exploiting consumers with higher prices and lower consumer surpluses
  • ^restricting output in order to raise prices and increase profits
  • ^output and choice is low in the market
  • risk of low quality due to lack of competition
  • they voluntary forgo economies of scale by not being productivly efficent
  • could have diseconomies of scale if become to large
  • become complacent with no competition allows waste
  • ^hard work for something not essential
  • new tech, innovation, new capital, upgraded capital, R&D
  • ^in intrests of consumers
115
Q

what is price discrimination

A

when a firm charges different prices to different consumers for an identical good/service with no difference in cost of production

116
Q

what are the conditions necessary for price discrimination

A
  • price making ability (some monopoly power)
  • information to seperate the market (into different PED’s)
  • prevent re-sale (market seepage)
117
Q

what is 1st degree price discrimination

A
  • when consumers are charged the exact price they are willing and able to pay for a good
  • ^eroding all consumer surples and turns it into monopoly profit
118
Q

what is excess capacity pricing

A
  • a firm with fixed capacity lower pricing last minute in order to try and fill the capacity and cover their fixed costs (last minute deals)
  • ^example would be hotels with rooms, venues with seats, airplanes with seats
  • consumers who buy last min benefit from gaining consumer surplus
119
Q

what is 3rd degree price discrimination

A

when firms are able to segment the market into different price elasticitys of demand (demand price inelasitc, elastic and combined) and will charge different prices to those different groups

120
Q

what are the cons of price discrimination

A
  • allocative efficency (exploiting consumers drastically)
  • inequalites (can be regressive in nature)
  • anti-competative pricing (low pricing in 3rd degree is anti-comp and can drive out comp)
121
Q

characteristics of natural monopolies

A
  • huge fixed costs
  • enourmous potential for economies of scale
  • rational for 1 firm to supply the entire market
  • ^competition is undesirable
  • competition would result in wasteful duplication of resources and non exploitation of full economies of scale
122
Q

examples of natural monopolies

A

utility companys
- ^water, gas, electrcity, internet distribution

rail travel providers

123
Q

what are the pros and cons for regulation in a natural monopoly

A
  • regulators would want them to be allocatively efficent so loads of quantity is produce at a small price
  • ^good for consumers as necessitys can be accessed by everyone
  • ^bad for producers because at allocative efficency their costs are above their price, so there is huge losses
  • ^subsidies are often given by the regulator to cover loss
  • ^huge costs to goverment in form of regulating and subsidising natural monopolies
124
Q

what are the cons of monopolys

A
  • allocative inefficency
  • ^lower consumer surplus
  • productive inefficency
  • X inefficency
  • inequalities in necessity markets
  • restrict output & choice
  • could be quality issues
  • generates deadweight welfare loss
125
Q

what are the pros of price discrimination

A
  • dynamic efficency
  • economies of scale (lower prices to consumers over time) - some consumer benefit (2nd and 3rd degree)
  • cross subsidisation (profits made in one part of the business can subsidies other less profitable parts of the business to provide the consumers with the service)
126
Q

what are some pros of monopolies

A
  • dynamic efficency
  • greater economies of scale (despite productive inefficency due to EoS they perhaps could produce more at a lower cost than comp firms)
  • natural monopoly (when regulated)
  • cross subsidisation
127
Q

what is meant by cross subsidisation

A

when a firm uses their high supernormal profits to subsidise a loss making good/service they are also producing that is socially desireable

128
Q

what are some evaluative points for monopolys

A
  • dynamic efficency (profit may not be reinvensted, such as higher dividends)
  • EoS vs DoS (depends on size of firm)
  • objective (may not be profit max, could be sales max)
  • regulation (if regulated properly helps reduce cons)
  • price discrimination (could make cons worse, especially allocative inefficency and inequality)
  • comp or threat of (could still be strong comp, pure monopolies cant exist, reduce cons, same thing if market is contestable)
  • natural monopoly (can benefit consumers if regulated right)
  • type of good/service (if in necessity bad, but if luxury maybe dont mind paying more if constant reinvestment)

EoS = economies of scale
DoS= diseconomies of scale

129
Q

what are the pros of competative markets

A
  • allocative efficency
  • ^higher quality,quantity and choice
  • higher consumer surplus
  • productive efficency
  • x-efficency
  • jobs
130
Q

what are the cons of competative markets

A
  • lack of dynamic efficency
  • lack of economies of scale (diagram)
  • cost cutting in dangerous areas (e.g. health, product saftey, environmental standards, wages)
  • creative destruction (EVAL: perhaps workers from shutdown firm could work for new firm)
131
Q

what is meant by creative destruction

A

the process of economic change that results from the introduction of new technologies or products that render existing ones obsolete (can cause firms to collapse creating unemployment

132
Q

what are some evaluative points when talking about competative markets

A
  • there may still be dynamic efficency (reinvestment might be part of comp in markets )
  • level of EoS
  • natural monopolies might be more efficent
  • where is cost cutting taking place (dont want it in dangerous areas)
  • role for regulation
  • static vs dynamic efficency (what do we want more as a society)
  • ^depends on type of G/S made (if necessitys would want comp markets, static efficency benefits wanted, but in certain markets consumers might pay higher prices for diffrentiation, reinvestment, innovation e.g. electronics)

EoS = economies of scale

133
Q

what are the characteristics of monopolistic competition

A
  • many buyers and sellers
  • slightly differentiated goods
  • ^slight price making powers (due to good substitues being available)
  • ^price elastic demand
  • low barriers to entry/exit
  • good information
  • non-price competition
  • firms are profit maximisers

e.g. clothing markets, taxis, fast food, hair dressers, bars/ nightclubs

134
Q

what are the efficencies found within monopolistic competition

A
  • allocative inefficency
  • productive inefficency
  • dynamic inefficency
135
Q

what are some evaluative points when talking about the efficencies of monopolistic competition

A
  • there is comp in the market, price making/exploitation ability of firms is low, not as bad as monopoly
  • in perfect comp there is homogenous goods, can be argued this is neg for consumers, consumers willing to pay more for diffrentiation found in this markets type
    • productive inefficency not as bad as monopoly, cant afford to as there is good substitues available
    • any EoS being exploited may be to greater extent than perfect comp resulting in lower prices
    • desire for variety makes it harder to exploit EoS (many goods vs one good)
    • may still be dynamic efficency in market (in very comp market, normal profits may be reinvested, just part of comp in the market)
136
Q

what is a concentration ratio
how is it written

A
  • the collective market share of the largest firms in the industry
  • n:total market share

n = number of firms in question : sum of market shares of top n biggest firms

137
Q

what are the characteristics of oligopoly markets

A
  • few firms dominate the market
  • ^high concentration ratio (no more than 7:70 % market share)
  • diffrentiated goods
  • ^firms are price makers
  • high barriers of entry/exit (start up costs, sunk costs, EoS)
  • interdependence
  • ^price rigidity
  • non-price competition
  • profit max not sole objective

examples include: UK supermarket industry, Uk energy industry

138
Q

what is meant by interdependence when talking about oligopolies

A
  • firms dont make decessions on their own independently, they make there choices based on the actions/reactions of rival firms
139
Q

what is the reason for the price rigidity within oligopolies

A
  • they wouldnt want to change their prices
  • they wouldnt need to change their prices
140
Q

what are some conclusion points when talking about oligopolies

A
  • still may be price competition (may still lower prices to try and gain market share, enter price war)
  • non-price competition will still take place (if prices tend to stay sticky/rigid)
  • temptation to collude (due to interdependence)
  • ^incentive to cheat on collusive agreement (evident in game theory)
141
Q

what is meant by the nash equilibrium when talking about game theory

A
  • a rational equilibrium, that can last in the long term
  • the box in a game theory matrix where both firms are charging the low prices

not the best outcome for either firm

142
Q

what does competative oligopoly depend on

A
  • price competition
  • non-price competition
143
Q

what is overt collusion

A

firms openly agree on price, output, and other decisions aimed at achieving monopoly profits.

144
Q

what is tacit collusion

A

type of collusive behavior where firms coordinate their actions without explicitly communicating or reaching an agreement

includes price leadership (small firms follow decisions of big firms)

145
Q

what are some factors that promote competative oligopoly

A
  • large number of firms (less concentrated oligopoly, organising collusion much more difficult)
  • new market entry possible (making supernormal profits attract firms into market and take profits)
  • one firm with significant cost advantages (makes it harder to collude)
  • homogenous goods (no price making power)
  • saturated markets (big incentive to cheat on collusion)
146
Q

what are some factors that promote collusive oligopoly

A
  • small number of firms (easier to organise collusion)
  • similar costs (easier to fix prices, collude)
  • high entry barriers (profits in market harder to take away by new firms)
  • ineffective competiton policy (likely to get away with collusion)
  • consumer loyalty (makes firms less likely to cheat as consumers may still stay with other firm)
  • consumer inertia (consumers not willing to swith suppliers, no guarentee that consumers will follow lower price)
147
Q

what are some evaluative points when talking about competative oligopolies

A

Pros and cons of competative markets

148
Q

what are some evaluative points for collusive oligopoly

A

pros and cons of monopoly outcomes

149
Q

what is a contestable market

A

one where there is a threat of competition via threat of entry

150
Q

what is the characteristics of contestable markets

A
  • low barriers of entry/exit
  • large pool of potential entrants
  • good information
  • incumbered firms subject to hit and run competition

incumbered firms means firms already in the market

  • technology also increases contestability:
  • reduced barriers to entry/exit (businesses dont have to be physical anymore, lower start up and sunk costs)
  • increasing pool of entrants (creative desruction, more productivly efficent forms of production to under cut incumbent firms prices)
151
Q

what is meant by hit and run competition

A
  • new firms enter the market quickly take some of the supernormal profit and then leave the market quickly before firms in the market can react and lower their profit margins
152
Q

where is the break-even point, normal profit and limit price found on a monopoly diagram

A

AC = AR

153
Q

why would firms in contestable markets look to move towards producing at limit pricing, AC=AR

A
  • they want to lower their profit margins to discourage entry into the market (get rid of super normal profits)
  • to be prepared if threat becomes real (they could compete with firms via lower prices and higher quantities)
154
Q

what are the pros of a contestable market

A
  • allocative efficency
  • productive efficency
  • x-efficency
  • job creation
155
Q

what are the cons of a contestable market

A
  • lack of dynamic efficency (eval: if new firms come in with new ideas thats the benefit of dynamic efficency)
  • cost cutting in dangerous areas
  • creative destruction
  • anti-competitive stratergies (limit pricing, flooding the market, heavy advertising, mergers)
156
Q

what are some evaluative point that can be used when talking about contestable markets

A
  • length of contestability (how long is the market contestable for)
  • role of technology (patents and copy rights can reduce contestability)
  • regulation (minimise issues such as cost cutting and anti-competative stratergies)
  • dynamic efficency
157
Q

who enacts competition policy

A
  • competition and market authority (CNA) in the UK
  • european competition commission in
158
Q

what are some examples of regulatory bodies

A
  • ORR (rail regulator)
  • CAA (airport & airline regulator)
  • OFCOM (telecommunications regulator)
  • OFWAT (water regulator)
  • OFGEM (gas and electricity regulator)

look over specific industrys
work beneath the CNA, report to them

159
Q

what are the aims of competition policy

A
  • prevent excessive pricing
  • promote competition
  • ensure quality, standards and choice
  • regulate natural monopolies/ensure effective privitisation of natural monopolies
  • promote technological innovation
160
Q

when will competition authorities intervene

A
  • antitrust and cartel agreements (collusion)
  • investigate mergers (especially when result of merger is a firm with more than 25% market share)
  • liberalise concentrated markets
  • monitor state aid control (makes sure subsidies, are not anti competative between firms, industires and countires)
161
Q

what are some examples of way that competition authoritys can regulate monopolies

A
  • price regulation
  • quality control/performance targets (e.g. trains, gas, electric, NHS)(e.g. no. delays on trains)
  • profit control covering costs and adding % return on captial employed/investment
  • windfall taxes on profits
  • merger policy
  • privitisation
  • deregulation
  • reducing trade barriers
162
Q

how are price regulation used to regulate monopolies

A
  • prices not being allowed to increase the next year beyond RPI, RPI-X, RPI±K
  • RPI = 3% and x = 1% then prices next year can only rise by 2 %
  • if prices need to rise by 4% for firms to invest in capital and RPI = 3% the compeition authority may allow for RPI + K(1%) to equal a price rise of 4%, same can be said if prices only need to rise by 2% K may = -1%

RPI = rate of inflation
x = percentage
k = percentage whereby enough profits can be made to allow for capital investment

163
Q

what is the reason a regulator might use RPI - X when regulating a monopoly

A
  • to incentivise efficency saving
  • firms have incentive to cut costs as much as possible below X to allow you to raise prices by RPI-X and give your self the largest possible profit margin
164
Q

what are some evaluative points that can be used when talking about price regulation in monopolies

A
  • level of X/K (will gov have perfect info, if set to high can shutdown firms, if set to low wouldnt get comp outcomes wanted)
  • cost (for regulatory bodies to go into firms and investiagte is costly, tax payer pays, opp cost)
  • incentive to keep X ↓ (to keep forcing firms into lowering costs, not fair on firms)
  • regulatory capture
165
Q

what are some evaluative points that can be used when talking about quality control/performance targets

A
  • unintended consequences (GPs seeing a set number of people per hour may lead to incorrect rushed diagnosis)
  • ‘game the system’ (train companys may say journey times are longer to prevent delays and look better)
166
Q

what are some evaluative points for when talking about profit control covering costs and adding % return on capital investment

A
  • asymmetric information (over report capital employed & costs)
  • incentive to ↑ costs (because they are going to be covered)
  • incentive to over-employ capital (they will see bigger returns)
167
Q

what are some evaluative points that can be used when talking about windfall taxes on profits

A
  • worsen monopoly outcomes (higher cost of production leads to higher prices and reduced quantity)
  • tax evasion/avoidance
  • less innovation (less retained profits to reinvest)
  • under reporting of profits
168
Q

what are some examples of merger policy to regulate monopoly

A
  • forced demergers
  • if merger creates monopoly outcomes in certain locations, in these locations they could force new merger to sell off stores/outlets to competitors to promote comp
169
Q

what are some general evaluative points that can be used when talking about monopoly regulation

A
  • level of information (gov failure, may not be perfect)
  • cost vs benefit (gov failure, very costsly, if regulation doesnt work well cons > pros)
  • regulatory capture (gov failure)
  • benefits of monopoly (dynamic efficency, natural monopolies)
170
Q

what is privitisation

A
  • when state run organisations/activity is sold off to the private sector
171
Q

what is the aim of privitiasation

A
  • private sector would run the organisations more efficently due to profit motive
  • more comp in market will also hopefuly work to bring down costs and improve efficency
172
Q

what are the advantages of privitisation

A
  • allocative efficency ↑
  • x-inefficency ↓ (firms need to drive down costs to remain comp)
  • efficency incentive which drives dynamic efficency
173
Q

what are some disadvantages of privitisation

A
  • maybe limited comp (productive and allocative inefficency)
  • loss making services cut even if socially desirable
  • loss of natural monopoly, loss of economies of scale benefits (productive inefficency as AC cant be minimised)
  • private firms ignore external costs and benefits
174
Q

what are some evaluative points that can be used when talking about privitisation

A
  • level of comp post privitisation (greater level of comp more effective it will be)
  • level of gov regulation (if regulation is strong then more comp outcomes likely, e.g. forcing firms to provide socially desirable services)
175
Q

what is deregulation

A

when goverments reduce legal barriers to entry within given industries to incentive more firms to enter the market and promote competition

176
Q

what are the advantages of deregulation

A
  • more firms will increase consumer choice (incentive for firms to be allocativly efficent)
  • ↑ productive and x efficency (to stay ahead of competitors)
  • ↑ dynamic efficency (with more comp any chance to get ahead will be taken, including innovation)
177
Q

what are some disadvantages of deregulation

A
  • lower barriers entry/exit could lead to loss of natural monopolies (wasteful duplication of resources)
  • Emergence of monopolies or oligopolies, leading to higher prices, reduced choice, and lower innovation.
  • Ignoring/underestimating environmental/health risks as result of negative externalities.
  • Weakening of measures, leaves consumers vulnerable to exploitation and unsafe products/services
  • Exacerbating disparities, as effects wealthy firms less than workers and small firms
  • without regulation soically desireable loss making services may be underinvested/lost
  • Exacerbation of existing marker failures in market that need regulation (asymetic info, externalities, inefficiencies)
178
Q

what are some evaluative points that can be used when talking about deregulation

A
  • short run vs long run (if u see oligopolies/local monopolies form in the LR contestability gonna fall)
  • height of other barriers to entry (if other barriers to entry are still high then contestability wont improve that much)
  • level of gov regulation (if oligoplies/local monopolies form need for gov reg against anti-comp behaviour)
179
Q

what is nationalisation

A
  • process of taking an industry into public/gov ownership (has intentions of promoting efficent outcomes)
180
Q

what are the arguements in favour of nationalisation

A
  • greater potential for economies of scale (↑productive efficency, ↓ AC and potential ↓ costs)
  • more focus on service provision (allocative efficency benefits, maximisation of consumer surplus)
  • less likely to be market failures from externalities (more likely to consider full social cost and benefit of production
  • public sector can be vehicle for macro-economic control
181
Q

How can the public sector be a vehicle for macro-economic control

A
  • goverments can manipulate wages to keep inflation under control
  • can control employment levels (if in recession public sector can employ more to keep unemployment rate low)
182
Q

what are some arguements against nationalisation

A
  • diseconomies of scale (if company is huge)
  • lack of incentive to minimise costs (higher costs, because lack of profit motive)
  • complacment & wasteful production (higher costs, ↑ x-inefficency, because lack of profit motive)
  • lack of supernormal profit (lack of profit motive, dynamic inefficency, ↓ innovation)
  • highly expensive, burden on tax payer (maintainence, paying wages, buying assests from private sector in first place, opp cost)
  • higher prices due to low competition (lack of comp drive, allocative inefficency)
  • greater risk of moral hazard (become happy to take risks)
  • political priorites override commerical issues (e.g. investment is needed in firm, wont do it in case risk goes wrong and they have electron coming up)
183
Q

define moral hazard

A

the one who takes the risk do not bare the costs of the risk

184
Q

what are some evaluative points that can be used when talking about nationalisation

A
  • funding vs delivery of key public services (huge costs vs supply of key public service benefits)
  • PPPs better (private pay for maintainence and construction of project, public rent out project, best of both?)
  • role of regulation (dont need to have full nationalisation if strong regulation)
  • competition in private sector (if high comp in private sector maybe no need to nationalise)
  • size and objective of private sector firms (if firms large and have EoS worth while keeping, not all private sector firms are profit maxers)

PPP refers to public private partnerships

185
Q

what is the difference between invention and innovation in economics

A
  • invention: creation of a new idea without it necessarily becoming a commerical reality
  • innovation: transforming an invention into commerical reality
186
Q

how would tech effect average costs and economies of scale

A
  • reduce CoP for businesses
  • LRAC will decrease
  • with more specalised capital there is greater technical EoS
  • a reduction in cost and increase in quantity at the minimum efficent scale
187
Q

How would improvements in tech effect efficency

A
  • ↑ productive efficency
  • allocative efficeny depends on wether the lower costs of prod efficency are passed on to consumers via lower prices
  • ↑ dynamic efficency
188
Q

how would technological change effect barriers to entry

A
  • significantly lower, e.g. less need for physical premises due to internet,↓ start up and sunk costs
  • however could increase in some industires due to increased EoS brought about by technology
189
Q

how would technology effect the number of firms in a market

A
  • it would depend on wether tech increases or decreases the barriers to entry for that market
190
Q

what is the law of diminishin utility

A

as quantity consumed increases the marginal utility gained form each extra unit decreases

191
Q

what does each economic agent look to maximise

A
  • firms max profits (most commonly)
  • govs max social welfare of citizens
  • workers max welfare they get from work
  • consumers max utility
192
Q

what is marginal utility equal to
what is utility equal to

A
  • MU = marginal private benefit
  • U = price
193
Q

where is total utility maximised

A

where marginal utility = 0

194
Q

where will a rational consumer consume to maximise utility

A
  • where marginal utility = price
195
Q

what are the 2 types of information failure

A
  • lack of information (if infor not there, not presented in clear way)
  • asymmetric information (info does exist but not shared equally)
196
Q

what issues can form as a result of lack of information

A
  • merit goods (under consumed, not reaching utility max)
  • de-merit goods (over consumed, going past utility max)
197
Q

what is the over arching problem that can come about because of information failure

A
  • irrational decisions
198
Q

what are some issues that can form due to asymmetric information

A
  • between employers and potential workers (potential workers know their skills, employer doesnt) may make irrational decision to employ unskilled worker
  • second hand markets (buyer or seller could have more info than other, other can make irrational decision)
199
Q

what are the types of vertical intergration

A
  • forward and backward
200
Q

what is forward and backward intergration

A
  • forward intergration = a firm expands operations to control/own distribution channels)
  • backward intergration = controlling/owning its suppliers, steps before itself in supply chain
201
Q

what is the purpose of forward integration

A
  • enhance control over the sales and distribution process, by managering them directly
  • can potentially increase efficiency, improve customer service, and gain a competitive advantage.
202
Q

what are the pros and cons of forward intergration

A

Pros:
- Greater control over the sales process (quality control, lets you manage customer interactions)
- Potential for increased profit margins.
- Improved coordination in marketing and distribution.

Cons:
- Increased complexity in managing retail operations.
- Requires significant investment.
- Potential challenges in adapting to the dynamics of the retail market.

203
Q

what is the purpose of backward intergation

A
  • enhance control over the supply chain
  • stable and potentially more cost-effective supply
  • can lead to increased efficiency, cost savings, and a more secure supply chain.
204
Q

what are the pros and cons of backward intergration

A

Pros:
- Greater control over the quality and cost of inputs.
- Enhanced security in the supply chain.
- Potential for cost savings through economies of scale.

Cons:
- Increased complexity in managing diverse business activities.
- Risk of investing in industries with different expertise.
- Potential anti-competitive concerns if market dominance is achieved.

205
Q

what are the key characteristics of organic growth

A
  • innovation, improved efficiency, increased productivity
  • focus on development of existing FoP
  • occurs over long term(sustained and sustainable)
  • low risk
206
Q

what are the pros and cons of organic growth

A

Pros:
- Stability: tends to be more stable, sustainable compared to rapid, external expansions.
- Better Integration: allows for better integration of new developments and innovations into existing framework.

Cons:
- Slower Pace: can be slower compared to growth through mergers or acquisitions.
- Limited Resources: Companies relying solely on organic growth may face limitations in resources for expansion.

207
Q

what is meant by acquisitions in economics

A

a business transaction in which one firm buys all or part of another company’s stock or assets

208
Q

what is horizontal integration

A

company expands operations by acquiring/merging with other companies that operate at same stage of production or distribution chain.

209
Q

what are some key aspects of horizontal intergration

A
  • Same Industry Focus: Companies merged, in same industry and offer similar products or services.
  • Expansion Across Markets: goal is to broaden market precense by acquiring competitors
  • Reducing Competition: can lead to reduction in competition as the company gains a larger market share.
210
Q

what are the pros and cons of horizontal intergration

A

Pros:
- Market Dominance: can lead to increased market share and dominance in particular industry.
- Economies of Scale: may result in cost savings and improved efficiency through economies of scale.

Cons:
- Anti-trust Concerns: Regulatory scrutiny may arise due to concerns about reduced competition in the marketplace.
- Integration Challenges: pose challenges in terms of cultural differences and operational integration.

211
Q

what is conglomerate intergration

A

company expands its operations by acquiring or merging with businesses that operate in unrelated industries.

212
Q

what are the key aspects of conglomerate intergration

A
  • diversification: diversify into unrelated industries to seek new opportunities.
  • Broader Portfolio: create broad portfolio of businesses, reducing dependence on a single market.
  • Risk Mitigation: By operating in diverse industries, company aims to mitigate risks associated with economic downturns in specific sectors.
213
Q

what are the pros and cons of conglomerate intergration

A

Pros:
- Risk Diversification: can protect company from economic downturns affecting specific sectors
- Access to New Markets: provides opportunities to enter new markets and capitalize them

Cons:
- Management Challenges: Managing businesses in different industries may pose challenges due to varying operational requirements and market dynamics.
- Synergy Issues: Achieving synergies between unrelated businesses can be difficult, impacting the overall performance of the conglomerate.

214
Q

reasons for demergers

A
  • focus on core-competencies: concentrate on their core business areas, shedding non-core or underperforming divisions
  • Strategic Restructuring: getting rid of diseconomcies of scale, plan to improve efficiency, reduce costs, and enhance overall competitiveness.
  • Market Dynamics and Specialization: may drive companies to demerge, allowing each entity to specialize in response to specific market demands.
215
Q

how can demergers affect workers

A
  • job uncertainty: reorganization could result in job cuts or changes in job roles.
  • Shift in Workplace Culture: Changes in management and organizational structure post-demergers may influence workplace culture, affecting employee morale.
  • Opportunities and Challenges: While some employees may face challenges, others may find new opportunities within the demerged entities.
216
Q

how can demergers affect consumers

A
  • Product and Service Changes: can lead to changes in products or services offered by separated entities, increasing consumer choice
  • Pricing and Competition: may be changes in pricing and competition dynamics as demerged entities may become competition
  • Customer Service Impact: Shifts in management focus and priorities can influence customer service quality, either positively or negatively.
217
Q

what are the characteristic for a monopsony

A
  • Single buyer: occurs when is single buyer in market, dominates purchase of specific good/service
  • Market Power: monopsonist has significant market power, allows them dictate price in market
  • Price Setter: As sole buyer, has ability to set the price and terms of goods or services it purchases.
  • Control over Quantity: monopsonist can control quantity of goods/services bought, influencing production levels and supplier in general
218
Q

what are the conditions for a monopsony to occur

A
  • Limited Sellers: must be a limited number of sellers/suppliers in the market.
  • Barriers to Entry: High barriers to entry
  • Unique Buyer Characteristics: buyer must have unique characteristics, e.g sole employer in specific area, giving it substantial influence.
  • Imperfect Information: allows monopsonist to have an advantage in negotiating terms with suppliers.
219
Q

what are the pros of monopsony

A
  • Cost Savings: can negotiate lower prices for goods/services, lower CoP, can be past onto consumer via lower prices
  • Increased Bargaining Power: has significant bargaining power, allows it to dictate favorable terms/conditions with suppliers.
  • Efficiency Gains: may lead to more efficient allocation of resources and streamlined supply chains.(productive efficency, dynamic efficency)
220
Q

what are the cons of monopsony

A
  • Reduced Output and Employment: reduce consumer choice as few amount of firms, limit amount of jobs created as fewer firms in market
  • Market Distortion: can effect competition and potentially limiting innovation in the long run
  • Exploitative Practices: may exploit its market power, leading to unfair treatment of suppliers
221
Q

what is the equation for finding marginal revenue product

A
  • marginal product x marginal revenue
222
Q

what is the definition of marginal revenue product

A
  • the marginal revenue created due to an addition of one extra unit of labour.
223
Q

what will causes shifts in the demand curve for labour

A
  • price of final good (higher price lower demand)
  • demand of final product (if falls shift left)
  • changes in labour productivity (increase will shift curve right)
  • change in price of capital (higher CoP, passed on will decrease demand)
224
Q

what key choice does labour make

A
  • choose between lesiure and work
225
Q

what is the income effect

A
  • as wages increase, income will do the same, but the potential for a individual to reach their target income increases as well
226
Q

what shape is the individual labour supply curve

A

backward bending

227
Q

whats the difference between a positive and negative income effect

A
  • positive income effect: incentives people to work more to increase our incomes in order to reach out target incomes
  • negative income effect: people may work less as they are earning beyond their target incomes
228
Q

what is the substitution effect

A

as wages rise, the opp cost of lesiure time increases providing a greater incentive to work

229
Q

what is meant by a monopsony empolyer

A

the sole employer of labour in a given industry

230
Q

what are the characteristics of a monpsony employer

A
  • wage maker
  • will maximise rev from workers by hiring where MRP=MC of labour
231
Q

what is a trade union

A
  • organisation comprised of workers that bargin on behalf of workers for higher wages and better work conditions
  • they adopted collective bargaining
  • control labour supply at given wage rates
232
Q

what is meant by a closed shop trade union

A
  • all workers in the given industry are all part of just one trade union

illegal

233
Q

what are some evaluative points that can be used when talking about trade unions

A
  • TU in comp vs monpsony labour markets: in monopsony labour markets make things better (more efficent)
  • strength of TU power: if weak may not be able to make changes (union density, greater this greater bargaining power)
  • success determined by union market up
  • real word evidence proves TU power is limited
234
Q

what is meant by union density

A

the proportion of the work force in a given industry that are part of a given trade union

235
Q

what is meant by the union mark up

A
  • difference in wage between workers in TU in given profession to what workers not in a TU are getting in a similar profession
  • bigger the difference bigger TU success
236
Q

How in the real world is trade union power limited

A
  • legislation: closed shop TU illegal, minimum service act, 75% of TU have to vote 50% have to vote yes to strike
  • reconstructing of economies: less labour heavy production ,labour has choice of employers, part time and gig econ prevalent
  • competitive pressures: firms have more power to reject demands
237
Q

what is the impact of trade unions on competitive labour markets

A
  • higher wages
  • lower employment (firms cant afford higher wages and same amount of labour)
238
Q

How do trade unions affect monopsony labour markets

A
  • higher wages
  • higher employment (higher supply of labour as incentivised by higher wages)
239
Q

What are some types of non-price competition

A
  • Product Differentiation: providing unique and distinctive goods/services.
  • Quality of Service: Providing excellent customer service
  • Branding: Establishing a strong brand identity and loyalty.
  • Advertising and Promotion: Effective marketing campaigns and promotions.
  • Product Features and Innovation: Introducing new and innovative products
  • Environmental and Ethical Practices: Emphasizing sustainability and ethical business practices.
240
Q

what are the pros of non-price competition

A

Product Differentiation:
- Enhances consumer choice
- Allows firms to ask premium prices for distinctive features

Quality of service:
- Can lead to positive word-of-mouth and repeat business.

Distribution Channels:
- Improves product accessibility and availability.

Environmental and Ethical Practices:
- limits negative externalities and social costs

241
Q

what are the cons of non-price competition

A

Higher Costs:
- Implementing non-price strategies can be costly.
- May lead to reduced profit margins.

Market Saturation:
- If many firms adopt similar strategies, it can lead to reduced effectiveness

Risk of Greenwashing:
- Environmental and ethical claims may be perceived as insincere.
- Companies may face backlash for false claims.

Customer Expectations:
- Constant innovation may be required to stay ahead, meeting heightened customer expectations can be demanding.

242
Q

what are the arguements for a minimum wage

A
  • poverty allevation
  • reduced wage differentials
  • incentive to work (reduces voluntary unemployment)
  • fiscal benefits to gov
  • increases productivity ->moral boost, firms may want to improve workers if they are worth more
  • can counter monopsonisty employer
243
Q

what are the arguements against a minimum wage

A
  • unemployment
  • youth effected most (less likely to have skills/experience to justify getting min wage)
  • those above min wage may want wage increase = to increase in min wage
  • cost to businesses (and gov if public sector worker)

Zak copy econ (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions