Market Structures Flashcards
Define Allocative efficiency
It will occur when the value to society from consumption is equal to the
marginal cost of production, where P=MC.
Define Productive efficiency
This can only exist if firms produce at the bottom of the AC curve, in the short run this
is where MC=AC
Define Dynamic efficiency
This is achieved when resources are allocated efficiently over time. It is concerned with investment, which brings new products and new production techniques
Define X- inefficiency
If a firm fails to minimise its average costs at a given level of output, it is X-inefficient and there is organisational slack. This is a specific type of productive inefficiency as it occurs when they fail to minimise their cost for that specific output
Give 4 characteristics of perfect competition
- many buyers and sellers
2.freedom of entry and exit
3.homogenous products
4.perfect knowledge
What type of efficiency does a perfectly competitive market have?
- They are productively efficient
- They are allocatively efficienct
- they aren’t dynamically efficient
Give 4 characteristics of Monopolistic Competition
- There are a large number of buyers and sellers
2.There are no barries of entry and exit - Products are non-homogenous
4.Frims have some price-setting power
What type of efficiency does a monopolistic competition have?
1.They are not productively or allocatively efficient
2.Dynamically efficient
3.May be able to enjoy some economies of scale
Give 4 characteristics of an Oligopoly
- Products are differentiated
- firms act interdependently
- There are high barriers of entry and exit
- High-concerntration ratio
What is collusive behaviour?
When 2 or more firms make a formal agreement that reduces competition
Give 4 characteristics of a Monopoly
1.There are high barriers of entry and exit
2.There is solely one buyer/producer in the market
3.They short run profit maximise
What is price discrimination?
When a firm charges people different prices for a good or sevice
What are the conditions to price discriminate?
- A firm must be able to clearly seperate the market into different groups of buyers
2.The customers must have different elasticities of demand
3.Firms must be able to control supply
Name some costs and benefits of price discrimination
1.Firms benefit as they’re able to increase their profits
2.Those in the elastic market are able to pay lower prices
3. Some Consumer surplus is lost
Give 2 characteristics of a monopsony
- Only one buyer in the market
2.Supplieres will be payed to lowest possible amount
Name some costs and benefits of a monospony to firms
- The monopsony gains higher profits from being able to buy supply at lower price
- They achieve purchasing economies of scale
Name some costs and benefits of a monopsony to consumers
1.Consumers may gain from lower prices
2. There may be fall in quality as prices go down
Name some costs and benefits of a monoposony to employees
- Suppliers will sell less goods therefore employing less people
2.Monopsonists will employ less people since they have less inputs
3.Monopsonists may give higher wages as they see more profit
Give 4 characteristics of a contestable market
- There is perfect knowledge
2.There is freedom of entry and exit - There is low product loyalty
- Firms are short run profit maximisers and dont collude
What are some implications of a contestable market?
- Firms will enter the market if they see other firms making abnormal profits , and they’ll remain until competition prevents them from making a profit , the only way to prevent this is limit pricing
- Firms are likely to be productively and allocatively efficient
What are 4 types of barriers of entry and exit
- Legal barriers - patents and exclusive rights to production
- Marketing barriers - High levels of advertising builds up brand loyalty
3.High capital start up costs
4.Economies of Scale
