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Economics > THEME 3 > Flashcards

THEME 3 Flashcards

(63 cards)

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1
Q

benefits with minimum wage

A

-reduces poverty, increased productivity, increased investment
-increases incentive to accept a job

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2
Q

problems of minimum wage

A

-unemployment, cost push inflation, black market,

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3
Q

what is a monopsony

A

one main buyer

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4
Q

formula for profit maximisation

A

MC=MR

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5
Q

problems with monopsony in the labour market

A

-can lead to lower wages for workers
-workers paid less than MRP
-firms with monopsony power care less about working conditions as workers don’t have alternatives to the main firm.

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6
Q

what is the concentration ratio

A

the percentage of market share taken up by the largest firms

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7
Q

normal profit

A

minimum profit required to keep factors of production in current use in the long run

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8
Q

super normal profit

A

profit achieved in excess of normal profit

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9
Q

sub normal profit

A

profit that is less than normal profit

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10
Q

characteristics of perfect competition

A

-large number of firms
-products are homogenous
-freedom of entry and exit
-firms are price takers as they have no control over the price they charge
-consumers and producers have perfect knowledge about the market

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11
Q

what is a pure monopoly

A

only 1 producer exists in the industry

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12
Q

what is monopoly power

A

refers to cases where firms influence the market in some way through their behaviour , determined by the degree of concentration in the industry

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13
Q

origins of monopoly

A

-growth of firm
-through takeover/ amalgamation (joining together)
-through license
-through legal means

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14
Q

productive efficiency

A

occurs when products are produced at a level of output where AC is lowest

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15
Q

X-inefficiency

A

inefficiency caused by unnecessary costs and waste

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16
Q

dynamic efficiency

A

improving efficiency through research and development into new products

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17
Q

allocative efficiency

A

efficient market when all goods and services meet the needs and wants of society

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18
Q

what is price discrimination

A

involves charging a different price to different groups of people for the same good.

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19
Q

1st degree price discrimination

A

involves charging consumers the maximum price they are willing to pay

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20
Q

2nd degree price discrimination

A

Involves charging different prices depending on quantity consumed

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21
Q

3rd degree price discrimination

A

involves charging different prices to different groups of people

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22
Q

3 conditions necessary for price discrimination

A

1- firm must operate in imperfect competition.
2- firm must be able to separate markets and prevent resale
3- different consumer groups must have elasticities of demand

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23
Q

disadvantages of price discrimination

A

-some consumers end up paying high prices
-decline in consumer surplus
-those who pay high prices may be poorest
-profits could be used to finance predatory pricing

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24
Q

advantages of price discrimination

A

-able to increase revenue which can be used for research and development
-some consumers benefit from lower fares

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25
what is an oligopoly
where the industry is dominated by a small number of very large producers and there is competition between a few firms
26
features of an oligopoly market structure
-price may be relatively stable across the industry -potential for collusion -interdependence of firms -goods could be homogenous -non-price competition may be existing in large scale -game theory can be used to explain behaviour -high barriers to entry
27
Characteristics of a contestable market
-No barriers to entry/exit -low sunk costs -new companies have access to the same technology
28
Advantages of oligopoly
-Competitive oligopoly can lead to price wars which increases consumer surplus -battle for market share leads to high levels of research and development which improve dynamic efficiency -high supernormal profits can be taxed
29
Disadvantages of an oligopoly
-collusive behaviour can rise prices and cause a loss of allocative efficiency -high concentration ratio limits consumer choice and barriers to entry deterring smaller firms from profitable entry -many transnational oligopolies successfully avoid paying tax
30
Barriers of entry a firm might face when entering a market
-sunk costs -level of advertising and brand loyalty -vertical integration -access to technology and skilled labour
31
Characteristics of monopolistic competition
-Large number of firms in industry -entry and exit from industry is relatively easy -may have some element of control over price due to them differentiating their products -imperfect knowledge between consumer and producer
32
Types of economic efficiency
1. Technical efficiency 2. Productive efficiency 3. X- inefficiency 4. Allocative efficiency 5. Dynamic efficiency
33
Allocative efficiency
-goods and services to meet people’s needs and wants are made and sold -resources are fully utilised - price = market price
34
Productive efficiency
Occurs when maximum number of goods and services are produced with a given amount of inputs. Occurs at the lowest point on the firms average cost curve
35
Dynamic efficiency
Measures the extent to which various forms of static efficiency improve over time. Improvements in dynamic efficiency results from introduction of better methods of producing existing products.
36
Potential pricing strategies
1- limit pricing 2- predatory pricing 3- revenue maximisation 4- profit maximisation 5- normal pricing 6- price war 7- sales volume pricing 8- price skimming 9- penetration pricing 10- promotional pricing 11- bundle pricing 12- discrimination pricing
37
1- limit pricing
Charge below average cost of your rivals
38
2- predatory pricing
Charging a price to form new rivals out
39
3- revenue maximisation
Pricing in order to bring in considerable revenue
40
4 - profit maximisation
Pricing to satisfy shareholders by making as much profit as possible in a year
41
5- normal pricing
Pricing to cover your ATC
42
6- price war
Constantly undercutting your equally powerful rival
43
7- sales volume pricing
Charging a price where AR = AC
44
8- Price skimming
Charge high price and slowly start to drop
45
9- penetration pricing
Charge low price and slowly increase
46
10- promotional pricing
temporarily reduce price to attract customers
47
11- bundle pricing
Charging a number of products as a bundle
48
12 - discrimination pricing
Different price for same product
49
Non price strategies
- qualified staff - superior products/ equipment - safe parking - free trial - memberships can be frozen
50
Collusion
When two or more firms agree to manipulate the market for their own self interest
51
3 types of collusion
1- formal 2- tacit 3- price leadership
52
Formal collusion
Rival companies agree to collude in setting prices rather than competing against each other
53
Tacit collusion
Firms coordinate actions without explicitly communicating or reaching an agreement
54
Price leadership collusion
Explicit or implicit agreement to keep price in mutual alignment between dominant firms
55
What is price capping
Where firms are only allowed to charge up to an agreed maximum price
56
Price cap diagram
57
Benefits of price capping
- protects low income consumers so they can afford essential inelastic goods - controls cost push inflation
58
Negatives of price capping
- prevents firms making fair profits - deterioration in product quality - reduce motivation - encourage black market and illegal activity
59
Benefits of regulators
- forces through better standards - evidence of heavy fines imposed - keeps prices under control - prevents excessive profit maximisation
60
Problems with regulators
-regulatory capture -firms need supernormal profits to reinvest -inflation changed after RPI + X set
61
Natural monopoly
A natural monopoly exists because the cost of producing the product is lower if there is just a single producer than If there are several competing producers
62
Privatisation
State owned industry is floated on the stock exchange and sold to profit making investors
63
Nationalisation
Private owned firms are taken into state ownership

Economics (7 decks)

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