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Economics Unit 3 > Concentrated Markets > Flashcards

Concentrated Markets Flashcards

1
Q

Why might a firm decide to try and grow? (3) (CES)

A

Cost saving
Economies of scale
Shareholder value

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2
Q

What is internal (organic) growth?

A

Occurs when a business gets larger by increasing the scale of its own operations rather than relying on the integration with other firms

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3
Q

What are the advantages of internal growth? (3) (DIE)

A

Develop new products
Invest in the capital/labour
Export to foreign markets

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4
Q

What are the advantages with external growth? (4) (FIEO)

A

Faster access to new products
Increased market share
Economies of scale
Overcome barriers to entry

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5
Q

What is horizontal integration?

A

2 business’ in the same in the same industry, at the same production stage, become 1

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6
Q

What is a benefit of horizontal integration?

A

Cost saving (fewer workers)

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7
Q

What is vertical integration?

A

2 business in the same industry, at different production stages, become 1

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8
Q

What is a benefit of vertical integration?

A

Better control of the supply chain

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9
Q

What is forward vertical integration?

A

Closer to the final consumers of the product

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10
Q

What is backward vertical integration?

A

Closer to the raw material of the supply chain

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11
Q

What is conglomerate integration?

A

When 2 business’ have no obvious relationship

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12
Q

What is lateral integration?

A

When 2 business’ join together, that produce similar but non competing products

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13
Q

What are the risks of merging companies? (2)

A

Clash of ideas

Loss of human capital

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14
Q

Why might 2 firms decide to merge? (2)

A

Better profits

Reduce competition

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15
Q

What is a monopoly?

A

A firm that has 25% or more market share?

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16
Q

What are the barriers to entry associated with a monopoly? (5)

A 
Patent laws
Nationalisation
Limit pricing
Sunk costs
Ownership of scarce resources
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17
Q

What are the barriers to exit associated with a monopoly? (2)

A

Closure costs

Loss of business reputation

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18
Q

What are the sources of monopoly power? (4)

A

No. of competitors
Advertising
Degree of product differentiation
Barriers to entry/exit

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19
Q

What is an oligopoly?

A

A small number of large firms that dominate the market

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20
Q

What are the features of an oligopoly? (5)

A 
Possess monopoly power
Highly concentrated
Non-price competition
Price wars
Entry barriers
21
Q

What is a concentration ratio?

A

A tool for measuring the market share of the top 5 firms in an industry

22
Q

What is interdependence?

A

Cannot act independently of each other

23
Q

What is a cartel?

A

When 2 or more firms enter in to an agreement to restrict supply or fix the price of a good

24
Q

Why do cartels tend to breakdown?

A

Because firms have an incentive to cheat on their quotas to benefit from high prices/output

25
Q

What are the conditions that will make the cartel more likely to stay? (3)

A

Small number of firms
Penalties for cheating
Easy observation of others

26
Q

What is price leadership?

A

Firms look up to 1 dominant firm to set prices

27
Q

What is game theory?

A

A study of how game players react to changing circumstances and plan their response

28
Q

What is zero sum game?

A

A gain by one player is matched by the loss of another

29
Q

What is risk averse?

A

Where one party does not take action that might promote retaliatory activity by another party

30
Q

What is collusive behavior?

A

Firms recognise their interdependence and act together rather than compete

31
Q

What is competition law?

A

Prohibits attempt to fix prices

32
Q

What is price discrimination?

A

When a firm with market power charges different prices to consumers for the same product

33
Q

What are the conditions necessary for price discrimination to take place? (3)

A

Market power
No resale
Segregate the market between consumers with different willingness to pay

34
Q

Explain what first degree price discrimination is. (perfect price)

A

Each consumer pays exactly what they are willing to pay. There is no consumer surplus

35
Q

Explain what second degree price degree discrimination is. (quantity)

A

Bulk-buying, 2for1, the more you buy the less you pay per unit

36
Q

Explain what third degree price discrimination is. (consumer)

A

Age, Time, Geographical

37
Q

What are the advantages of price discrimination? (2) (ID)

A

Increase economic profit

Dynamic efficiency

38
Q

What are disadvantages of price discrimination? (2)

A

Inequitable

Welfare loss

39
Q

What are the features of a contestable market? (3) (FLL)

A

Freedom of entry/exit
Low sunk costs
Level of brand loyalty

40
Q

What is hit and run competition?

A

A firm enters the market to take advantage of the supernormal profits, if the market is no longer profitable the firm will leave the market

41
Q

At what point does allocative efficiency occur?

A

MC = AR

42
Q

At what point does productive efficiency occur?

A

The lowest point on the LRAC curve

43
Q

What is static efficiency?

A

Both allocative and productive efficiency at the same time

44
Q

What is dynamic efficiency?

A

Reduce costs by new production processes

45
Q

What is consumer surplus?

A

The difference between what what the consumer is willing to pay and what they actually pay

46
Q

Does the consumer surplus triangle sit above or below the equilibrium point?

A

Above

47
Q

What is producer surplus?

A

The difference between the price the producer is willing to sell and the price they actually sell

48
Q

What is dead weight loss?

A

A loss in economic welfare

Economics Unit 3 (15 decks)

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