competitive markets

Question 1

definition

Answer 1

Where no single firm has a dominant position and where the consumer has plenty of choice when buying goods or services. There are few barriers to the entry of new firms.

Question 2

PROS

Answer 2

• Allocative efficiency
• Productive efficiency
• X efficiency
• Reverse DWL loss monopoly graph
• Jobs

Question 3

CONS

Answer 3

• Lack of dynamic efficiency – normal profit
• Lack of economies of scale – not as much potential as monopolies
• Cost cutting in dangerous areas – costs could be cut in wages, safety and health requirements
• Creative destruction – new firms joining and destroying could cause unemployment, however those lost job workers could transfer to new firms coming in.

Question 4

Evaluation

Answer 4

• Still some dynamic efficiency occurring
• No for natural monopoly
• Level of EoS is important
• Where is cost cutting taking place = role for regulation?
• Weighing up static vs dynamic efficiency, this depends on the type of good/ service, a necessity good would be more static.