3.1.2 relative prices, perfect competition and types of efficiency Flashcards
define relative price
are the final price of a particular good or service compared to another.
define relative profits
compare profits gained from producing one good in comparison to another.
define allocative efficiency
allocative efficiency occurs when the allocation of resources chosen maximises societies wellbeing
define technical efficiency
The point of production occurring where productivity is at a maximum and where average costs are at a minimum.
-It is not possible to increase output without increasing inputs.
-Once again any point along the PPF curve should be technically efficient as all of a nations resources are being used.
dynamic efficiency
Refers to how quickly an economy can reallocate to achieve allocative efficiency.
This means how fast a business can change production to match societies changing needs and wants.
inter-tempotal efficiency
Focuses on balancing the allocation of resources between different time periods.
-economic agents consider whether resources will be adequate to sustain future generations wants and needs.
define market
a market is seen as any type of arrangement that facilitates exchange between buyers and seller
what are some preconditions of a perfectly competitive market
consumer sovereignty exists
firms have no market power or control over prices
firms have ease of entry or exit or no Barries
the products are homogenous
resources are mobile
behaviour is rational and includes profit maximisation
there is perfect knowledge of the market
define monopolist competition
a type of market structure where many companies are present in an industry, and they produce similar but differentiated products.
define oligopoly market structure
consists of a small number of firms that have substantial influence over a certain industry or market.
define a pure or perfect monopoly market structure
a single seller in a market or sector and high barriers to entry, such as significant startup costs.
define pure or perfect competition as a market structure
a marketing situation in which there are a large number of sellers of a product which cannot be differentiated and, thus, no one firm has a significant influence on price.
how does a change in relative price impact resource allocation
Relative prices influence resource allocation by signaling where producers should supply more and where consumers should spend. Changes in price guide resources to where they are most valued in the economy.
define resource allocation and how it related to relative price
relates to the way economic resources are used in combination to produce finished goods and services.
in determination of the most appropriate way to allocate resources firms must analyse relative prices.
as price of one good increases, profit driven firms re-allocate resources away from less profitable forms of production(lower prices) to more profitable forms of production (higher prices)
how does relative prices impact living standards
living standards are likely to rise and be maximised when firms pay close attention to changes in relative prices as this will produce the most efficient allocation of resources.
define price mechanism
the way changing market conditions and the resulting movement tin relative prices, coordinate the way resources are allocated within the economy.
define market mechanism
refers to a system of market work in which the power of supply and demand determines the price and quantity of goods traded. this mechanism allows the market to go to a new equilibrium point when disequilibrium occurs.
