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AQA MicroEconomics > Market Structure > Flashcards

Market Structure Flashcards

1
Q

What is the spectrum of competition ?

A

perfect competition —> monopolistic competition —-> oligopoly —–> monopoly

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2
Q

Objectives Of Firms

A

Profit Max (MC=MR)
Profit Satisficing
Revenue Max
Sales Max

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3
Q

Why would you profit max ?

A

Re- investment (R&D)
Shareholders and Dividends
Lower Costs & Lower prices for consumers
Reward for Entreprenurship

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4
Q

What are the problems with profit max ?

A
  • Under greater scrutiny as for charging high prices
  • Profits may not be split equally
  • MC =MR ( people have imperfect information)
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5
Q

What is profit satisficing ?

A

Profit Satisficing is the act of sacrificing profit to satisfy key stakeholders

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6
Q

Define Revenue maximisation

A

Marginal Revenue = Demand

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7
Q

Why would a firm revenue max ?

A

They may want to achieve economies of scale, predatory pricing is existing to drive out competition etc

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8
Q

What is sales max ?

A

Sales max is when the aggregate cost is equal to aggregate demand.

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9
Q

Why would a firm sales max ?

A
  • To encourage economic growth (EOS)
  • Flood the market
  • Limit Pricing ( drive competition out )
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10
Q

What are the other objectives of firms ?

A

Survival , Public Sector Organisation

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11
Q

What is perfect competition ?

A

Perfect competition is when consumers and producers have full and symmetric information

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12
Q

What is the characteristics of perfect competition ?

A
  • Many buyers and sellers
  • Homogenous goods –> firm is price taker
  • No barriers to entry/exit
  • Perfect Information
  • Firms are Profit Max (MC=MR)
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13
Q

What happens to profits in the short-run ?

A

In the short run , supernormal profits only exist in the short -run

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14
Q

What happens to profits in the long-run in a perfectly competitive market ?

A

In the long run , the supply move to the right due to the supernormal profits. This causes the price fall, which will lead to normal profit

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15
Q

What is the efficiencies achieved of perfect competition ?

A
  • Allocative Efficiency is achieved
  • Productively Efficiency is achieved
  • X-efficiency is achieved
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16
Q

What is monopolistically competition ?

A

Monopolistically competitive markets are defined by product differentiation and non-price competition

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17
Q

What happens in the short run for monopolistic competition ?

A
  • MC = MR as firms profit maximise. When there are supernormal profits ,entrants are attracted so supply increases
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18
Q

What happens in the long run in a monopolistic competitive market?

A

When there is an increase in the amount firms and supply in the industry , the demand and AR curve for the individual firms shifts to the left. The firms still operate at MC=MR

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19
Q

What is the pros of monopolistic competitive market ?

A

Markets are contestable , differentiation and diversity

20
Q

What is the cons of monopolistic competitive ?

A
  • Differentiation
  • Allocative and Productively inefficiency
21
Q

What is an oligopoly ?

A

An oligopoly is a market structure in which a few large firms dominate the industry in which each firms have significant power

22
Q

What is the characteristic of oligopoly?

A
  • High barriers to entry & exit
  • High concentration ratio
  • Interdependence
23
Q

What is a cartel ?

A

A cartel is a collusive agreement by firms , usually to fix prices

24
Q

What is tacit collusion?

A

Tacit collusion is informal (price leadership and price wars)

25
Q

What is overt collusion ?

A

Overt collusion is usually formal ,usually secret, agreements among competitors

26
Q

What is price leadership?

A

The setting of prices in a market ,usually by a dominant firms

27
Q

What is price aggrement ?

A

Price agreement is an agreement is between firms regarding the pricing of goods

28
Q

What is limit prices ?

A

Prices set low enough to make it unprofitable for other firms to enter the market

29
Q

Define Predatory Prices

A

Predatory prices are prices set below average costs to force rival firms out of business

30
Q

What does the basic model of monopoly suggest?

A

Higher prices and profits will lead to a misallocation of resources compared to a competitive market

31
Q

What is monopoly power influence by ?

A
  • Barriers to entry
  • No of competitiors
  • Advertising
32
Q

How is dynamic efficiency achieved in a market ?

A

The supernormal profit is achived and can be used for R&D increasing dynamic effiency

33
Q

Define Price Discrimination

A

Price Discrimination is when different consumers are charged different prices for the same product or services often with prices they are willing to pay

34
Q

What are the three conditions of price discrimination?

A
  • Identify different groups of costumers or sub markets for the product
  • Different elasticities of demand for different consumers
  • Must prevent seepage (resell)
35
Q

What is first degree price discrimination ?

A

All consumers are charged the exact price they are willing to pay up , meaning there is no consumer surplus at all

36
Q

What is second degree discrimination ?

A

When prices are dropped in the case of excess supply ( eg off peak )

37
Q

What is third degree price discrimination ?

A

When different groups of consumers show different PEDs

38
Q

What are the pros of price discrimination ?

A
  • Firms can maximise revenue , enabling firms to stay in business , profits can be used for R&D
  • Some consumers benefit from lower fares
39
Q

What is the cons of price discrimination ?

A
  • Consumer surplus falls
  • Some consumers get exploited
  • Allocative Ineffiency
  • Admin Costs
40
Q

What is the pros of competitive markets ?

A
  • Perfect Knowledge
  • Max consumer surplus and economic welfare
  • Allocative and Productive Effiency achieved
41
Q

What is the cons of competitive markets ?

A
  • Very unrealistic, completely disregards the behaviour economics
  • lack of profits so therefore dynamic effiency is not achieved
42
Q

What is creative destruction ?

A

Refers to when new technological and innovations replace older ones

43
Q

What are the pros of creative destruction ?

A
  • An incentive for incumbent firms to keep costs low and invest in development
44
Q

What is the cons of creative destruction?

A
  • Structural unemployment
  • Ineffiences in redistributing resources
45
Q

What is hit-run competition ?

A

New entrants can join a market, make profits and leave

46
Q

Define sunk costs

A

Costs that cannot be recovered

47
Q
A

AQA MicroEconomics (5 decks)

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