Week 8 Key stuff Flashcards
What is an example of a highly competitive market?
Oil market
What are the characteristics of a highly competitive market? E.g. the oil market
Many buyers and sellers
Homogenous product
Very good price information.
Price takers.
What are the characteristics of perfect competition?
Goods or service being exchanged is homogenous
There are large numbers of potential buyers and sellers, each acting independently of the others.
There is perfect information
There is free entry into the market and free exit
Due to these characteristics buyers and sellers will be price-takers.
What is the supply curve equal to?
Marginal cost curve.
What happens if there is some product differentation in a market in a market?
Where there is some product differentiation but still many buyers and sellers, and low entry barriers firm may have a little price making power resulting in a slight downwards sloping demand curve.
What does consumer surplus equal?
Willingness to purchase price - Price paid
What is produce surplus equal to?
Price sold at - willingness to accept price
Where is total surplus maxmised at and thus pareto effienct?
When the market is in equilibrium in a competitive market.
What is needed for a market equilibrium to be pareto efficicent?
Firms need to be price takers
Contracts are complete
No external effects on those not involved in the market.
What does an increase in demand mean?
Demand is higher at each possible price, so the demand curve has shifted, in response to this shift there is a change in price.
This change in price leads to an increase in the quantity supplied, seen by a change in the supply curve.
There is not an increase in supply, as the amoung supplied to the market has not changed.
How do instituions affect how markets operate?
Search technology, e.g. qord of mouth, gathering in one place, advertising, ICT.
Property rights, law and enforcement.
Trust, social norms, reciporicty, threat.
Medium of exchnage money.
