Market Efficiency

Question 1

When is a market efficient

Answer 1

When there is equal producer and consumer surplus

Question 2

Consumer surplus

Answer 2

The measure of the wellbeing of consumers,
an increase in consumer surplus means their economic welfare has increased

Difference between extra benefit/satisfaction from buying a product at the price they have to pay
Area bellow d curve above equilibrium price

Question 3

If consumer surplus falls

Answer 3

Price has risen, they are less willing to buy more, satisfaction falls as welfare decreases

Question 4

Producer surplus

Answer 4

The area above the supply line bellow the price point
When you sell above what it costs to produce, make a profit
If price increases producer surplus increases

Question 5

Total surplus
Community surplus
Total welfare

Answer 5

TS= consumer surplus + producer surplus 
TS= total benefit - total costs

Question 6

Max total surplus

Answer 6

Equilibrium

Question 7

Consumer surplus or producer surplus more important

Answer 7

Consumer
Consumer is king, producers role is to meet demand, seeing an opportunity to fill demand and in turn make profit
In an unregulated free market consumer surplus is more important because without it there would be no producer surplus

Question 8

Market efficiency

Answer 8

The economic use of resources used to meet an economies demand for goods and services

Question 9

Marginal benefit

Answer 9

Extra pleasure, benefit or satisfaction consumer receives from consumption of a product

Question 10

Market price

Answer 10

The clearance price, where Qs = Qd

Question 11

Marginal cost

Answer 11

Extra production cost of one more unit of output

Question 12

Deadweight loss

Answer 12

Difference between the actual level of welfare generated in a market and max possible level of welfare

Question 13

When will deadweight loss occur

Answer 13

Market not operating at most efficient point, equilibrium

Could be: under-production (shortage) or over-production (surplus) or prices set above or bellow e point

Question 14

Market failure

Answer 14

Resources not allocated in an optimal manner, thus community surplus is not maximised
Can occur: p has a monopoly power or market activity= externalities or side-off effects on by standers
Can create deadweight loss

Question 15

Market power

Answer 15

The ability of a firm to adjust the price in order to increase profit
Exist as- monopolies and oligopolies
Eg. Grocery industry

Question 16

Free market

Answer 16

Large # of firms
Price takers
Homogeneous products
Low barriers of entry
Eg. Agricultural sector- wheat farmers and fruit pickers

Question 17

Monopolistic competition

Answer 17

Many firms
Price takers
Products differ slightly 
Low barriers of entry 
Eg. Restaurants and hair salons

Question 18

Oligopoly

Answer 18

Few firms
Price makers
Similar products
High barriers of entry 
Eg. Petrol, food stores (Coles wollies)

Question 19

Monopoly

Answer 19

One firm
Total price makers
Only products 
Extremely high barriers of entry
Eg. Telstra, western power, water Corp

Question 20

Externalities

Answer 20

External side effects of economic activity experienced by a third party

Question 21

Positive externalities

Under consumed

Answer 21

External benefit received by third party due to ec transactions
Eg. Edu (society benefits by a more skilled and productive workforce)
Gym membership (health benefits, benefits employer fewer sick days)

Govt policy to correct- pay a subsidy to encourage

Question 22

Negative externalities

Over consumed and under priced

Answer 22

Occur when ec actions from production or consumption create an external cost
Eg. Smog and air pollution from cars, congestion due to high traffic, noise pollution from lawn mowers, cigarette passive effects on non smokers, fossil fuels contribution to global warming and climate change

Govt policy- impose tax to deter

Question 23

Anti-competitive behaviour

Answer 23

Any agreements or arrangements between firms that seek to restrain competition and thereby remove the automatic regulation that competitive markets achieve
Fix prices, divide the market, or prevent the entry of new firms
Firms can then collectively act as a monopoly or oligopoly
Result in market failure and DWL

Question 24

Examples of anti competitive behaviour practices

Answer 24

Cartels 
Misuse of market power
Exclusive dealing 
Resale price maintenance 
Predatory pricing 
Collective bargaining 
Boycotts

Question 25

Effect of market power on
Consumer
Producer
Total Surplus

Answer 25

C- reduces
P- increases
TS- creates DWL so reduces

Question 26

ACCC

Australian Competition and Consumer Commission

Answer 26

Independent commonwealth statutory authority whose role it is to enforce the competition and consumer act 2010, promoting competition for the benefit of all Australians
Polices anti-competitive behaviour

Question 27

Policy options to influence market power

Answer 27

ACCC enforcing rules
-increasing competition
Could be: fines
Not allow a merger to take place

Question 28

Key goals of ACCC

Answer 28

1. Maintain and promote competition and remedy market failure
2. Protect interest and safety of consumers and support fair trading in markets
3. Promote eclly efficient operation of, use of and investment in monopoly infrastructure
4. Increase our engagement with the broad range of groups affected by what we do