important Flashcards
Externalities
An externality occurs when the production or consumption of a good or service creates external costs and/or external benefits. These side effects are known as externalities.
Market failure
Market failure occurs when resources are not allocated efficiently - in other words total economic surplus is not maxised
What is a subsidy
A subsidy is grant given to producers by the government with the purpose of increasing output and reducing costs
What is ANTI-COMPETITIVE BEHAVIOUR
The term anti-competitive behaviour refers to any agreements or arrangements between firms that seek to restrain competition and thereby remove the automatic regulation that competitive markets achieve.
What is a barrier to entry
A barrier to entry is anything that restricts or blocks the entry of new firms into an industry or market.
What is government regulation
Governments can use regulation to reduce or eliminate the market failure associated with monopoly firms
What is deregulation
Remove the unnecessary restrictions on the market and allow increased competitions
What is the ACCC
The role of the ACCC is to protect, strengthen and supplement the way competition works in Australian markets and industries
To improve efficiency of the economy and to increase the welfare of Australian
To ensure that benefits of increased competition flow through to consumers in the form of lower prices and better services.
The merger business practices to reduce competition
Two or more firms join together to form one larger firm. If a merger results in benefits to consumers then it is allowed , but if it- substantially reduces competition in the market then it is prohibited
CARTEL business practice
When firms agree to act or collude together instead of competing with each other - includes both price fixing and market sharing
what is market failure
Market failure occurs when resources are not allocated efficiently - in other words total economic surplus is not maxised
what is market power
A firm has market power if it can affect the market price by varying its output.
The term market power refers to the ability of a firm (or group of firms) to raise and
maintain price above the level that would prevail under a competitive market.
An imperfect market exits:
there are relatively small number of firms
firms have market power
firms use market differentiation
barrier to entry are used to restrict competition
What is a price ceiling
A legislated maximum price that sellers are allowed to charge in the market. Price ceiling is designed to benefit consumers by keeping the price below the market clearing price
What is a price floor
A legislated minimum price that sellers are allowed to charge the market. Desinged to help producers
Types of Regulations
limit the number of types of businesses
limit the ability of businesses to compete
reduce the incentive for businesses to compete
limit the choices and information available to consumer
OLIGOPLY
is market with few dominant firms. Coles and Woolworths dominate the grocery market in Australia. Quanta’s and virgin dominate the domestic aviation market
MONOPOLY
is a market with one firm. Synergy and Australia Post are government regulated monopolies,
Total Surplus Definition
The sum of PS and CS is referred to as total surplus.
Total surplus is a measure of net benefits to society from the production and consumption of a good.
Dead Weight Loss
Refers to a loss of total surplus due to underproduction or overproduction
What is producer surplus
Producer surplus is the difference between what a producer is willing to receive and what they actually receive
What is Consumer surplus
Consumer surplus is the difference between what a consumer is prepared to pay and what they actually pay in the market
