Slatman Theme 3 Flashcards

Question

What is productive efficiency and where is it on the monopoly diagram

Answer 1

The ability of a firm to produce at the lowest possible cost At the lowest point on the AC curve

Answer 2

The inefficiencies within a company that result in higher production, costs the necessary for a given output

Answer 3

An efficient market whereby all goods and services meet the needs and wants of society. Resources are allocated efficiently. P =mc

Answer 4

Involves adapting and innovating to maintain efficiency in the face of changing market conditions, consumer preferences and technology

Answer 5

- Help to grow the economy - more competition, so more productivity, more profits which means more money in the circular flow which means more jobs available so more spending - Improve the balance of payments as more exports - Improve the unemployment figures - Reduce the levels of inflation within the economy - incentivised to keep costs low to maximise their outputs and generate more profits. If costs are low prices can be kept low so you can keep competitive.

Answer 6

No free rider problem Allows access to low-income families Benefits from economies of scale Not profit incentivised, so makes decisions to benefit everyone

Answer 7

Opportunity cost Some pay without using it No incentive to reduce costs so inefficient

Answer 8

When there is a conflict in priorities between the owner of an asset, and the person to whom control of the asset has been delegated E.g owners versus managers

Answer 9

An arrangement in which one entity legally appoint another to act on his behalf

Answer 10

Price capping Profit capping Breaking up a monopoly Windfall taxes Privatisation and nationalisation Performance targets and natural monopolies Deregulation Subsidies Self regulation Encouraging small businesses

Answer 11

Cost/opportunity cost Level of economic development Level of poverty /inequality

Answer 12

Enhances competition

Answer 13

Moving something from the public sector into the private sector

Answer 14

Making a private firm, a public firm

Answer 15

Quicker than government intervention They have more knowledge of the market They don’t have the power so they refer the issues to others

Answer 16

Grants, finance and loans Business support e.g mentoring

Answer 17

To encourage innovation Local jobs To increase competition

Answer 18

Opportunity cost

Answer 19

Where there is realistically only room for one firm in the market e.g National Grid This is due to sunk costs and efficiencies

Answer 20

A massive cost that you will never get back

Answer 21

Innovation Reinvestment from huge profits, so better quality Sunk costs shared across large number of customers

Answer 22

- Allocatively inefficient so higher prices - Opportunity cost for government as monopoly already has huge profits so don’t need the subsidy - reduced consumer choice - less innovation due to no competition - high barriers to entry due to large sunk costs

Answer 23

They are independent bodies set up to police natural monopolies They can: - Set price caps - Fines - Enforce quality standards

Answer 24

RPI + X RPI = inflation They can put prices up by the retail price index They can also put it up by an agreed amount (X)

Answer 25

Regulators goes against principles of a free-market Firms should be allowed to make supernormal profit Regulatory capture

Answer 26

A process by which regulatory agencies may come to be dominated by the interest they regulate and not by the public interest

Answer 27

The process of removing or reducing government, rules, laws, and restrictions in an industry This creates competition

Answer 28

More efficient firms so lower costs (AC curve goes down) X - efficient Better service Enhance productivity and innovation (dynamically efficient)

Answer 29

Firms may not enter the market due to the large sunk costs Small firms make sure to compete, so still only a few firms donate

Answer 30

Contractors paid for the construction costs. They then rent the finish project back to the public sector. E.g a prison. The government pays £5 million a year.

Answer 31

These partnerships work well when private-sector technology and innovation combine with public-sector incentives to complete work on time and within budget. Allocative efficiency Better skills as they specialise in it More effective at using resources X-efficient

Answer 32

Tendency to cut corners to save costs

Answer 33

When the government decides the monopoly has become too big and forces it to sell off part of its business

Answer 34

- Too much power, so no competition, so no strive for quality or lower pricing as not efficient - diseconomies of scale, so costs pushed onto the consumer

Answer 35

Forms an oligopoly

Answer 36

All money earned is reinvested as government aren’t profit maximising Quality of service is good as this is the focus More affordable

Answer 37

Privatisation is more competitive so should be better quality and they also understand the market better Long-term project, not short term , takes time to be put in place Opportunity cost

Answer 38

When two or more firms agree to manipulate the market for their own self interest They do this by: - Charging the exact same amounts, and then raising the price together - They agree to not compete against each other with advertising your location

Answer 39

- Increase revenue and profits which can be used for further investment - Not spending as much on the advertisement as you aren’t competing for customers - Maintains customers - Priced ability is not in competition

Answer 40

Tacit - unofficial (e.g. speak at golf club) Formal (sit down and agree) Price leadership - they follow each other’s price

Answer 41

Firms will have to reduce their prices to keep within profit cap Therefore: lower energy bills and so households may be better off in real terms / may increase energy consumption / domestic firms that consume energy may become more competitive due to lower costs of production / rising consumer surplus.

Answer 42

More affordable for low income consumers Brings firms closer to allocative efficiency - reducing market failure

Answer 43

Firms can attract less investment as less profits Reduced profit for reinvestment so becomes less innovative and efficient

Answer 44

External economies of scale are cost advantages that benefit an entire industry or region, rather than individual firms This is like infrastructure spending to decrease time wasted in transport to make a firm more productive. Or Specialized Suppliers: The presence of multiple firms in an industry can lead to the development of specialized suppliers who can provide inputs at lower costs

Answer 45

Greater revenue Higher producer surplus (if collude with price rises) To protect market share/dominance

Answer 46

Align Incentives: By linking the agent's compensation to their performance, you incentivize them to act in a way that benefits both parties. This can be done through various methods like stock options, performance-based bonuses, or profit-sharing. Increase Transparency: By providing regular reports and disclosures, the principal can monitor the agent's actions and ensure they are acting in the principal's best interest. This can involve making financial statements public, holding regular shareholder meetings, or providing detailed disclosures on executive compensation. Shareholders general goal is profit maximisation, whereas the manager may have sales or revenue maximisation goals possibly due to bonuses incentivising sales

Answer 47

Providing performance related pay runs the risk of encouraging irrational decision making by managers that target the increase of profits in the short run at the expense of long term investments that may offer a better rate of return. Managers may choose to cut spending in key areas such as r&d investment to improve profitability in the short term, but worsen in the long term.

Answer 48

Pricing : Predatory pricing Limit pricing Price discrimination Non pricing: Advertising and branding Collusion Mergers and other forms of growth Quality improvements

Answer 49

Lower prices: Monopsonists can negotiate lower prices due to their dominant position, leading to lower revenues and profits for suppliers. Reduced investment: Suppliers may be hesitant to invest in new technologies or expand capacity if they face the risk of being squeezed by the monopsonist. Potential market exit: Suppliers may be forced to leave the market if they cannot make a profit at the lower prices demanded by the monopsonist. Reduced quality: In an effort to cut costs, suppliers might reduce the quality of their goods or services. Delayed payments: Monopsonists may delay payments to their suppliers, further impacting their cash flow and ability to invest.

Answer 50

Lower prices (short-term): Consumers might initially benefit from lower prices as the monopsonist passes on some of the savings. Reduced choice and quality: As suppliers exit the market or reduce quality, consumers may face a limited range of products and a decline in overall quality. Reduced innovation: With less pressure from competitors, monopsonists may be less motivated to innovate, leading to a stagnation of the market.

Answer 51

Will damage the reputation of the firm[s] fined which will increase contestability in the market, encouraging competition and innovation

Slatman Theme 3 Flashcards

(75 cards)