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Week 6 Lecture 1 Flashcards

(16 cards)

1
Q

What does the concept of competitive markets fail to explain?

A

The concept of competitive markets fails to explain:
- Why the number of firms differs across industries
- Why firms in different industries have different sizes
- Why profitability differs across industries

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2
Q

Do product characteristics differ across markets and what are the two categories?

A

Product characteristics differ across markets: homogenous and heterogenous

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3
Q

What are the other costly activities that firms are involved in not related to production?

A

Firms are involved in other costly activities not related to production such as:
- Advertising, product differentiation, R&D and technological and product innovations

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4
Q

What does the market conduct of firms depend on?

A

The market conduct of firms is strategic and depends on the actions taken by buyers, rivals, suppliers and the government

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5
Q

Do governments regulate the conduct of firms?

A

Governments control and regulate the conduct of firms in some industries

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6
Q

What are the four different market structures?

A

1- Perfect competition
2- Monopolistic competition
3- Oligopoly
4- Monopoly

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7
Q

State the features of the perfect competition market structure

A
  • Large number of identical firms
  • No barriers to entry
  • Homogenous products
  • Zero profit in the long run
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8
Q

State the features of the monopolistic competition market structure

A
  • There are many firms
  • There are small/moderate barriers to entry
  • Products are highly differentiated
  • There is zero profits in the long run
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9
Q

State the features of the oligopoly market structure

A
  • There are a few firms
  • There are high barriers to entry
  • Products are homogenous/heterogenous
  • There are positive long run profits
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10
Q

State the features of the monopoly market structure

A
  • There is one firm in the market
  • Impassable barriers to entry
  • There is absolute product differentiation
  • There is huge long run profits
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11
Q

What is the SCP paradigm?

A

The Structure-Conduct-Performance (SCP) paradigm suggests that market structure influences how firms behave (their conduct), which in turn affects their overall performance

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12
Q

What is market power?

A
  • Market Power is the ability of a firm to profitably raise
    the market price above marginal costs
  • Market power decreases as the number of competing firms
    increases
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13
Q

What are the three different types of barriers to entry/exit in markets

A
  • Institutional barriers
  • Strategic barriers
  • Non-strategic barriers
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14
Q

State the different types of institutional barriers

A
  • Zoning: Government allows certain economic activity in specified areas but not others
  • Licensing: Govt regulation where you need a license to pursue a particular profession
  • Patents and copyrights
  • Tariffs
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15
Q

State the different types of strategic barriers

A
  • Limit pricing: Incumbent firms lowers its prices deterring new firms from entering due to lack of profit margins
  • Tying: Selling a good or service as a mandatory addition to purchasing another good or service
  • Collusion
  • Price discrimination: Selling the same good at different prices to different consumer groups
  • Advertising
  • Reputation
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16
Q

State the different types of non-strategic barriers

A
  • Absolute cost advantage: A producer can provide a good or service in greater quantity for the same cost or the same quantity at a lower cost than its competitors
  • Sunk (start up) costs
  • Scale economies - One firm can serve the entire market