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Microeconomics > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

What is market structure

A

The organisational and other characteristics of a market

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2
Q

What are entry barriers

A

Obstacles that make it difficult for a new firm to enter a market

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3
Q

What are exit barriers

A

Obstacles that make it difficult for an established firm to leave a market

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4
Q

What is product differentiation

A

The marketing of generally similar products with minor variations or the marketing of a range of different products

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5
Q

What is the divorce of ownership from control

A

The owners and those who control the firm are different groups with different objectives

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6
Q

What is satisficing

A

Achieving a satisfactory outcome rather than the best possible outcome

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7
Q

What is productive efficiency

A

For the economy as a whole occurs when it is impossible to produce more of one good with pricing less of another
For a firm occurs when the average total cost is minimised

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8
Q

What is allocative efficiency

A

Occurs when it is impossible to improve overall economic welfare by reallocating resources between markets in the whole economy price must equal marginal cost

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9
Q

What is allocative inefficiency

A

Occurs when p>Mc in which case too little of a good which is produced and consumed and when p< mc in which case too much of a good is produced and consumed

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10
Q

What is allocative inefficiency

A

Occurs when p>Mc in which case too little of a good which is produced and consumed and when p< mc in which case too much of a good is produced and consumed

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11
Q

What is a monopoly

A

One firm only in a market

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12
Q

What is monopoly power

A

The ability of a monopoly to raise and maintain price above the level that would prevail under perfect competition. Market power can also be exercised usually to a lesser degree by firms in oligopoly and monopolistic competition.

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13
Q

What are natural barriers

A

Barriers to market entry cause by geography

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14
Q

What are sunk costs

A

Costs that have already been incurred and cannot be recovered

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15
Q

What are artificial barriers

A

Man made barriers to market entry eg patent protection

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16
Q

What is the concentration ratio

A

Measures the market share of the biggest firms in the market

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17
Q

What is market conduct

A

The pricing and marketing policies pursued by firms this is also known as market behaviour, but it is not be confused with market performance which refers to the end results of these policies

18
Q

What is a cartel

A

A collusive agreement by firms usually to fix prices sometimes there is also an agreement to restrict output and to deter the entry of new firms

19
Q

What is price leadership

A

The setting of prices in a market, usually by a dominant firm which is then followed by other firms in the same market

20
Q

What is price agreement

A

An agreement between a firm and similar firms, supplier or customers regarding the pricing of a good or service

21
Q

What is a price war

A

Occurs when rival firms continuously lower prices to undercut each other

22
Q

What is price discrimination

A

Charging different prices to different customers for the same product or service with the prices based on different willingness to pay

23
Q

What is a contestable market

A

A market in which the potential exists for new firms to enter the market. A perfectly contestable market has no entry or exit barriers and no sink costs and both incumbent firms and new entrants have access to the same level of technology

24
Q

What is hit and run competition.

A

Occurs when new entrant can hit the market make profits and then run given that there are no or low barriers to exit

25
Q

What is static efficiency

A

Efficiency at a particular point in time

26
Q

What is consumer surplus

A

A measure of the economic welfare enjoyed by consumers: surplus utility received over and above the price paid for a good

27
Q

What is producer surplus

A

A measure of the economic welfare enjoyed by firms or producers the difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept

28
Q

What is deadweight loss

A

The loss of economic welfare when the maximum attainable level of total welfare fails to be achieved

29
Q

What are the key features of perfect competition?

A
  • a large number of buyers and sellers
  • with perfect market information
  • able to buy/sell as much as they wish at ruling market price
  • unable to influence the market ruling market price
  • uniform product
  • no barriers to entry or exit in the long run
30
Q

How to distinguish between different market structures?

A
  • The number of firms in a market
  • Market entry barriers
  • product differentiation
31
Q

What are other possible objectives other than profit maximisation?

A

Growth maximisation and survival as business objectives
Sales revenue maximisation
satisficing principle

32
Q

what are the advantages of monopoly?

A

economies of scale

dynamic efficiency

33
Q

what are the disadvantages of monopoly?

A

productive inefficiency

allocative inefficiency

34
Q

How does monopolistic competition resemble perfect competition?

A
  • large number of firms in the market
  • in long run there are no barriers to entry and exit
  • as a result entry of new firms attracted by short run abnormal profit brings down price
35
Q

How does monopolistic competition resemble monopoly?

A
  • each firm faces a downward-sloping demand curve this results from the fact that each firm sells slightly differentiated products
  • Each firms marginal revenue curve is below its average revenue curve which of course is the demand curve for the firms output
36
Q

What are the various forms of non price competition?

A
  • marketing competition, including obtaining exclusive outlets such as tied public houses and petrol stations through which breweries and oil companies sell their products
  • use of persuasive advertising, product differentiation, brand imaging, packaging, fashion and style and design
  • quality competition, point of sale service and after sales service
37
Q

What are some different examples of market conduct in oligopoly?

A
  • Interdependence and uncertainty in oligopoly
  • non collusive oligopoly, collusive oligopoly and cartels
  • collusion vs market cooperation
38
Q

What are the criticisms of the kinked demand curve?

A

it does not explain how and why a firm chooses in the first place to be at a point x where the two lines meets
the evidence provided by the pricing decisions of real world firms give little support to the theory

39
Q

What are the possible advantages of oligopoly?

A
  • firms can benefit from economies of scale which means they can become more dynamically efficient and can pass on cost cuts as low prices to consumers
  • with only a few firms will be easy for consumers to compare and choose the best option for their needs
  • provided there is a degree of competition oligopolists continue to innovate and develop new and better products
40
Q

what are the possible disadvantages of oligopoly?

A
  • restrict output and raise prices firms may satisfice content with an easy life
  • cartels are a bad form of market structure
  • small competitive, innovative firms may find it difficult to enter the market
  • producer rather than the consumer ends up being king
41
Q

successful price discrimination requires what following conditions to be met?

A
  • must be possible to identify different groups of customers or sub-markets for the product
  • the different groups of customers must have different price elasticities of demand
  • markets must be separated to prevent seepage
42
Q

Appropriate policies suggested by the theory of contestable markets include removal of:

A
  • licensing regimes for public transport and television and radio transmission
  • controls over ownership, such as exclusive public ownership
  • price controls that act as a barrier to entry such as those which used to be practised in the aviation industry

Microeconomics (8 decks)

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