Market Failure Market Power Flashcards
When does market failure occur?
Market failure occurs when resources are not allocated efficiently, resulting in outcomes that do not maximize economic welfare for society.
What are the characteristics of an imperfect market?
mperfect market has (1) a small number of firms, (2) product differentiation, (3) significant barriers to entry, and (4) reduced competition.
What are the four main types of market failure?
Market Power, Externalities, Public Goods, and Common Goods.
What is market power?
Market power is the ability of a small number of firms to influence market prices and restrict output, often seen in monopolies and oligopolies.
What are three examples of barriers to entry in a market?
Examples of barriers to entry include (1) high startup costs, (2) complex regulations, and (3) strong brand loyalty of existing firms.
What is the impact of market power on economic welfare?
arket power reduces economic welfare by increasing producer surplus at the expense of consumer surplus, decreasing total economic surplus and creating deadweight loss.
Why is a monopoly considered inefficient?
A monopoly is inefficient because it restricts output to increase prices, which decreases consumer surplus, reduces total surplus, and creates a deadweight loss.
How does government try to reduce market power?
government uses legislation like the Competition and Consumer Act of 2010, price regulation, and the Australian Competition and Consumer Commission (ACCC) to reduce market power and increase competition.
What is the purpose of price regulation in markets with high market power?
Price regulation aims to prevent firms from overcharging consumers, making the market more competitive, increasing output, and enhancing economic welfare.
What is the role of the Australian Competition and Consumer Commission (ACCC)?
The ACCC enforces the Competition and Consumer Act, helping to reduce market power and protect consumer interests by promoting fair competition.
