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AG ECONOMICS AGB110 > Market Equilibrium and Market Prices Under Imperfect Competition > Flashcards

Market Equilibrium and Market Prices Under Imperfect Competition Flashcards

1
Q

What do the forces of demand and supply influence in the market?

A

Price

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2
Q

What are the two features that the Agricultural Market has?

A

Price variability and Price cycles

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3
Q

Where the supply and demand curves intersect is called?

A

Market equilibrium (perfectly competitive market)

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4
Q

When does market equilibrium occur?

A

It occurs when the quantity of good offered by sellers at a given price equals the quantity buyers are willing and able to purchase at that same price.

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5
Q

What is the equilibrium point called?

A

A long run equilibrium (because it takes time to reach that equilibrium).

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6
Q

Demand is short for?

A

Demand’ is short for ‘demand curve’

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7
Q

Supply is short for?

A

Supply’ is short for ‘supply curve’

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8
Q

What is Market Disequilibrium?

A

Markets are rarely in equilibrium. The changing demand and supply conditions across numerous markets result in market disequilibrium.

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9
Q

What are the symptoms of Market Disequilibrium?

A

The symptoms of market disequilibrium can be either commodity shortage or commodity surplus.

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10
Q

What are the prices related to Market Disequilibrium called?

A

Disequilibrium Prices

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11
Q

What can the government do if the price is above Market equilibrium?

A

If price is above the equilibrium (surplus) the government can:

(1) restrict production
(2) subsidise exports
(3) subsidise some consumers
(4) destroy the surplus of the commodity

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12
Q

What can the government do if the price is below Market equilibrium?

A

If price is below the equilibrium (shortage) the government can:

(1) promote production
(2) subsidise imports
(3) subsidise some producers
(4) introduce close substitutes in the market

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13
Q

What are the four basic Market Structures?

A

Pure competition (perfectly competitive market), monopolistic competition, oligopoly, and monopoly.

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14
Q

What is a Perfectly Competitive Market (Pure Competition)?

A

Many buyers and sellers, homogenous product, freedom of entry and exist (no barriers to entry), and perfect information available for the producers and consumers (market participants).

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15
Q

What is Price Determination?

A

Price determination is the theoretical determination of prices in competitive markets.

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16
Q

What is Price Discovery?

A

Price discovery is the formation of prices within the market (through various systems/processes). It is a human process involving interaction between the buyers and sellers and various imperfections of real market places.

17
Q

What are the five systems(processes)of Price Discovery?

A

Negotiation between individuals; organised central market trading; formula pricing; collectively bargained prices; and administered prices

18
Q

What are the two factors of Price Instability?

A

inelasticity of supply and demand, where small changes in output have large consequences for the prices (e.g. local market prices by export market)
volatility of supply and demand, the extent of shifts and the unpredictability of shifts (e.g. drought)

19
Q

What is Economic Welfare?

A

Economic welfare in terms of consumer surplus and producer surplus; and illustrates price determination under monopoly and also identify the economic welfare consequence of the monopoly pricing.

20
Q

What are the basic requirements for Competition?

A

Alternative economic systems:
 Market economy (capitalism)
 Planned economy (communism)
 Mixed-economy (between the two extremes,
socialism, with liberal or democratic views).
(No economy is purely capitalist/socialist/communist).
Degree of competition: Pure competition > monopolistic competition > oligopoly > monopoly
The efficiency conditions established for production, input use, consumption, determination of output, profit maximisation and price determination are all underlying principles that support the attainment of efficiency under pure competition, ….for the notion that competitive market will allocate resources efficiently and maximise social welfare.

21
Q

When does Imperfect Competition Exist?

A

An imperfect competition exists whenever the individual or firm buying or selling a product or service has some control over the prices (whereas in perfect competition we assume that they do not have control over the prices, and they are price takers).

22
Q

What is Marginal Revenue?

A 
Marginal revenue (MR) is a change in total revenue for a unit increase in quantity sold, i.e. MR = ΔTR / ΔQ
For the monopolist, MR is always less than price (demand)
23
Q

What is meant by First Degree Price Discrimination?

A

First-degree price discrimination is of theoretical interest only and not so practical (a monopolist may vary price so that each customer pays the full additional value of each unit purchased along the demand curve).

24
Q

What is meant by Second Degree Price Discrimination?

A

second- degree price discrimination or multiple pricing, which is more common and employed in charging for products such as electricity and gas.i.e discrete variations in price.

25
Q

What is meant by Third Degree Price Discrimination?

A

Third-degree price discrimination arises when a monopolist finds it profitable to charge different prices for his product in different markets. Used in agricultural marketing, i.e. home consumption price schemes or two price schemes.

26
Q

What is the Social loss Due To Monopoly?

A

Monopolist prices to maximise profit.
The price will be above the marginal cost (MC) of production
(P > MC).
In a perfect competition P = MC if the firm is in long-run
equilibrium.
This is a loss to the consumers (because they are paying more for the product that they would pay under the perfect competition).

27
Q

What is meant by Dead weight Loss?

A

Dead weight loss is due to loss of consumers surplus (CS) and producers surplus (PS), therefore a loss of economic welfare.

28
Q

What is Economic Rent?

A

Monopolist’s profit (economic rent) is a transfer of consumers surplus to the monopolist. Not lost to the system but redistributed, i.e. increases the producer’s (monopolist’s) surplus while reduces the consumer’s surplus.
A monopoly is not good but not bad at all (when it comes to producing something that needs huge investments and expertise).

29
Q

Key Terms

A
  • Demand
  • Supply
  • Market
  • Market equilibrium
  • Perfectly competitive market
  • Shift in demand
  • Shift in supply
  • Market disequilibrium
  • Disequilibrium market: Surplus
  • Disequilibrium market: Shortage
  • Demand
  • Supply
  • Market
  • Market equilibrium
  • Perfectly competitive market
  • Shift in demand
  • Shift in supply
  • Market disequilibrium
  • Disequilibrium market: Surplus
  • Disequilibrium market: Shortage

AG ECONOMICS AGB110 (12 decks)

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