3.8.6 - Market Imperfections

Question 1

What is the effect of imperfect and asymmetric information in a market?

Answer 1

Firms will likely lack accurate information about how their rivals will react to pricing decisions.

To remove this uncertainty, firms are more likely to collude as we see the disadvantages of monopoly with none of the advantages.

Question 2

Why might the existance of monopoly lead to a market failure?

Answer 2

Profit-maximising monopolies are likely to restrict output and raise the prices of goods, leading to consumer exploitation.

Prices are too high, with too few of society’s resources allocated to production of that good.

(However, sometimes the benefits of monopoly outweighs the negatives (indivisibilies, economies of scale etc.)

Question 3

What is the immobility of labour?

Answer 3

The inability of labour to move from one job to another due to either:
* training requirements
* geographical constraints

Question 4

How can workers overcome some occupational immobility?

Answer 4

Getting qualifications and training.

Question 5

How can government’s protect their own countries workers against others?

Answer 5

Choosing to not recognise other countries qualifications allows their own countries qualifications to be more important.