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Microeconomics > Competitive and Concentrated Markets > Flashcards

Competitive and Concentrated Markets Flashcards

1
Q

What are structural barriers to entry?

A

They arise from a firms ability to exploit economies of scale and thus enjoy a cost advanatage over potential new entrants to the market

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2
Q

What are strategic barriers to entry?

A

The conduct of the firm itself and very often are associated with a strong sense of brand recognition and loyalty

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3
Q

What are statutory barriers to entry?

A

Provide legal protection to a firms position in a market, perhaps by granting of a patent for an innovative new idea or by the provision of a licence for the right to operate a particular type of business

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4
Q

What does a monopolist do?

A

Restrict output in order to charge a higher price (maximising profit) The absence of competitive pressure in the market allows them to do this

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5
Q

Definition of monopoly?

A

Market dominated by a single firm

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6
Q

Define pure monopoly?

A

A market where the firm has 100% of the market share

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7
Q

Define monopoly power?

A

When firms behave like a monopoly (have 25% of market share)

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8
Q

Describe a natural monopoly?

A

Will arise when the economies of scale in an industry are so significant that the most efficient way to satisfy demand on the industry is to have the good or service provided by a single firm

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9
Q

Describe consumer surplus?

A

The difference between what consumers are willing and able to pay for a good or service and what they actually pay

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10
Q

Describe producer surplus?

A

The difference between what producers are willing and able to supply their goods or services at And what they actually supply them at

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11
Q

Characteristics of a perfectly competitive market?

A

Many buyers and sellers Sellers are PRICE TAKERS Free entry to and exit from the market Perfect knowledge Homogeneous goods Firms are short run profit maximisersp

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12
Q

What determines price in competitive markets?

A

Demand and supply

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13
Q

Why is profit likely to be lower in a competitive market?

A

Firms have a very small market share so their market power is very small

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14
Q

Drawbacks of monopoly power?

A

Higher prices, profits and inefficiency may result in a mid allocation of resources Exploitation of customers Loss of allocative efficiency No incentive to be efficient (fee or no competitions SO production costs high)

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15
Q

Benefits of monopoly?

A

They can exploit economics of scale and have lower average costs of production Huge profits that they may invest in reaserch and development This may yield positive externalities and make the monopoly more efficient in long run More invention and innovation

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16
Q

Describe brand loyalty barriers to entry?

A

Demand more inelastic Hard for new firms to gain consumer loyalty

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17
Q

Examples of barriers to entry?

A

Economies of scale Brand loyalty Controlling technology Reputation

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18
Q

Descrive how a market can be characterised by the number of firms?

A

The more firms the more competitive

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19
Q

Describe how a market can be characterised by the degree of product differentiation?

A

The more differentiated the products, the less competitive

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20
Q

In a perfectly competitive market, what are the products?

A

Homogenous

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21
Q

How can products be differentiated?

A

Price Branding Quality * cross price elasticity of demand*

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22
Q

Describe how ease of entry characterises a market?

A

Number and degree of barriers to entry

23
Q

What are barriers to entry designed to do?

A

Prevent new firms entering the market profitably

24
Q

What characterised a market?

A

Number of firms Product differentiation Ease of entry to market

25
Q

What influences monopoly power?

A

Barriers to entry Number of competitors Advertising Product differentiation

26
Q

Barriers to entry that can maintain monopoly power?

A

Economies of scale Limit pricing Owning a resource Sunk costs Brand loyalty

27
Q

Descrive economies of scale as a barrier to entry that maintains monopoly?

A

As a firm grows Average costs fall due to economies of scale Firms have a cost advantage over new entrants to market Deters firms from entering as they can’t compete Maintains monopoly power

28
Q

Descrive owning a resource as a barrier to entry that maintains monopoly?

A

Early entrants to a market can establish their monopoly power by gaining control of a resource

29
Q

Descrive brand loyalty as a barrier to entry that maintains monopoly?

A

If consumers are very loyal to a brand Increased by advertising It is difficult for new firms to gain market share

30
Q

Descrive sunk costs as a barrier to entry that maintains monopoly?

A

If unrecoverable costs eg advertising Are high Then new firms will be deterred from entering as they are unable to compete And don’t get costs back

31
Q

Descrive set up costs as a barrier to entry that maintains monopoly?

A

If it is expensive to establish the firm New firms will be unlikely to enter the market

32
Q

How does number of competitions affect monopoly power?

A

The fewer the number of firms The lower the barriers to entry The harder to gain a large market share

33
Q

How does advertising affect monopoly power?

A

Increased consumer loyalty Making demand price inelastic Creating a barrier to entry

34
Q

How does a degree of product differentiation affect monopoly power?

A

The more a product can be differentiated through quality pricing and branding The easier it is to gain market share The more unique the fewer competitors

35
Q

What is production?

A

The process by which inputs are converted into outputs

36
Q

What is difficult to alter in the short run?

A

Amount of land employed by a firm Sometimes true of capital

37
Q

Define the short run in microeconomics?

A

Period of time in which at least one factor of production is in fixed supply

38
Q

What is productivity a measure of?

A

The efficiency of factors of production

39
Q

What is productivity measured in?

A

Output per worker or output per worker per hour

40
Q

Definition of a market structure?

A

The organisation of a market in terms of the number of firms in the market and the ways in which they behave

41
Q

What is a market?

A

Where buyers and sellers meet to exchange goods and services

42
Q

Determinants of market structure?

A

Number of buyers and sellers Barriers to entry Level of knowledge - awareness of substitutes Homogeneity of product (product differentiation)

43
Q

What does price takers mean?

A

They must charge the price charged by their competitors if they are to make any sales This price is determined by supply and demand

44
Q

What is a fixed cost?

A

It does not change with the level of output in the short run Usually capital costs - eg machinery or rent

45
Q

What is a variable cost?

A

Increases as output rises Falls as output falls

46
Q

Define consumer surplus?

A

The difference between what consumers are willing and able to pay for a good or service and what they actually pay

47
Q

Define producer surplus?

A

The difference between what producers are willing and able to supply their goods or services at and what they actually supply them at

48
Q

What is a pure monopoly?

A

A market where one firm has 100% of the market share

49
Q

What is a monopoly?

A

A market dominated by a single firm

50
Q

When does a natural monopoly occur?

A

When the economies of scale in an industry are so significant that the most efficient way to satisfy demand in industry is to have the good or service produced by a single firm

51
Q

What is total welfare in a market?

A

Economic surplus - the sum of producer and consumer surplus

52
Q

When is total welfare maximised?

A

When there is allocative efficency

53
Q
A

Microeconomics (5 decks)

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