3.4 Market Structures Flashcards
What is the four types of efficiency?
Allocative efficiency
Productive efficiency
Dynamic efficiency
X-inefficiency
What is allocative efficiency?
Occurs at the level of output where AR=MC
Resources are allocated - producers and consumers get maximum benefit
No excess demand or supply
What is productive efficiency?
Occurs at the output where MC = AC
AC is minimised
No wastage of scare resources and high level of factor productivity
What is dynamic efficiency?
Long term efficiency is a result of innovation as a firm reinvests its profits
Improvements in manufacturing methods
Lowers both short-run and long-run ATC
What is X-inefficiency?
Occurs when a firm lacks the incentive to control production costs
ATC is higher than it should be
Occurs due to a lack of competition in industry that has no consequences for making a loss (gov owned companies )
What is market structures?
Characteristics of the market in which a firm or industry operates.
Can be separated into perfect and imperfect competition
What are the characteristics of a market?
Number of buyers
Number and size of firms
Type of product (homogenous or differentiated)
Types of barriers to entry and exit
Degree of competition
What are the imperfect competition market structures?
Monopolistic
Oligopoly
Monopoly
Draw and explain efficiency and inefficiency in perfect competition.
Diagram - D=MR=AR is perfectly elastic, and ACs lowest point touches D=MR=AR
Profit max MC=MR
Productively efficient as MC=AC
Allocatively efficient as AR=MC
Unlikely to experience dynamic efficiency - unlikely to have SNP to reinvest
Draw and explain efficiency and inefficiency in imperfect competition
Diagram normal cost and revenue diagram
Profit max where MC=MR
Not productively efficient as AC>MC
Not allocatively efficient as AR>MC
Likely to experience dynamic efficiency as it will be able to reinvest its profits and increase innovation
Characteristics of perfect competition.
- Many buyers and sellers - due to sellers being price takers
- No barriers to entry or exit - increase competition
- Perfect information
- Homogenous goos - no brand loyalty - any price change will lose customers
