3.4 - Market Structures

Question 1

Define the term efficiency.

Answer 1

Efficiency is the measure of how resources can resolve the three basic questions of economics - how, what and for whom.

Question 2

Give the two main types of efficiency.

Answer 2

• Static efficiency

- Dynamic efficiency

Question 3

What is static efficiency?

Answer 3

Static efficiency is the efficiency at one moment in time.

Question 4

Give the two types of static efficiency.

Answer 4

• Productive efficiency

- Allocative efficiency

Question 5

What is dynamic efficiency?

Answer 5

Dynamic efficiency is a measure of resource efficiency over a certain time period.

Question 6

Define productive efficiency.

Answer 6

Productive efficiency occurs when a firm produces goods and services at the lowest possible average cost.

Question 7

What is allocative efficiency?

Answer 7

Allocative efficiency concerns whether the goods and services produced meet consumer needs or wants.

Question 8

Where is a firm productively efficient (on diagram)?

Answer 8

A firm is productively efficient where its operating at the lowest point of the AC curve.

Question 9

Define productive X-inefficiency.

Answer 9

Productive X-inefficiency is where a firm produces at a higher average cost, hence it produces within the AC curve but not exactly on the boundary.

Question 10

What is monopolistic competition?

Answer 10

Monopolistic competition is a form of competition combining competitive markets and monopoly.

Question 11

Give a characteristic of monopolistic competition.

Answer 11

There are low barriers to entry or exit.

Question 12

State another characteristic of monopolistic competition.

Answer 12

There are high numbers of consumers and producers but each one is relatively small and different from the other.

Question 13

Describe a third characteristic of monopolistic competition.

Answer 13

There are non-homogeneous goods sold (goods that don’t share the same characteristics).