Perfect Competition Flashcards

1
Q

Advantages

A
  • PC=MC, production at AC
  • only normal profits made in LR
  • Consumer sovereignty
  • Competition efficacy
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2
Q

Disadvantages

A
  • insufficient profits for investment
  • scariness of product diversity
  • absence of comp over product design and specification.
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3
Q

What do Neo-economists argue

A
  • PC would produce best possible outcome for consumers and society.
  • no need for gov ref expect to make markets more competivte
  • no externalities / no external cost / benefits to third parties not involved in transaction
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4
Q

Example of market

A
  • firms within PC - can sell as much as they like at any given price meaning P = MR = MC
  • example is carrot and cabbage
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5
Q

TR=TC

A

Total cost include = rent, wages, interest and normal profit means enterpenour cover opportunity cost.

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6
Q

What happens in SR and LR in PC

A
  • SR- abnormal profits / loses be made
  • LR- normal profits be made due to exit /entry of diff firms
  • LR- firms are alloctively and productively efficient.
  • equation P=MR=MC=AC represents that curve is in fact supply curve.
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7
Q

What’s the enter and exit of firms more likely happen

A
  • increase of firms into industry in SR unlikely - little time to enter.
  • LR- field will enter industry
  • existing companies gain supernormal profits
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8
Q

What is the quaintly of buyers and sellers

A
  • large quaintly of buyers and sellers
  • freedom of entry and exit ( means depart and exit easy )
  • single firms won’t increase price
  • same goes for lowering price as goods will still sell at market price
  • example - peas - no point selling peas higher price as wont sell any.
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9
Q

Is PC a price taker

A
  • Price taker as horizontal de and curve at market price
  • perfect knowledge of market at both consumers and producers know prices whereas producers will know costs as well as market opportunities available.
  • despite conditions firms probs not meet.
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10
Q

Finically industry ; example of PC

A
  • foreign exchange side of things.
  • currency is homogeneous- goods traded within market remain same no matter what
  • people have access to traders to be realisable info
  • brexit £ dropped against €
  • day of brexit £1 = 1.2900 now around £1 = 1.09 roughly 15% decrease
  • companies introduce cash passport /travel money cards to ensure the return of company return.
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