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Economics Unit 3 > Market structures > Flashcards

Market structures Flashcards

1
Q

6 charicteristics of a perfectly competative market

A
  1. Many buyers with no influence on price
  2. Firms and custmers have perfect knowledge
  3. Products are homogenous
  4. No barriers to entry or exit
  5. Perfect mobility in all factors of production
  6. All firms are profit maximisers
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2
Q

one example of a perfectly competitive

A

Agricultural industry

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3
Q

What does the diagram look like for a perfectally competative market?

A
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4
Q

What does this Diagram show?

A

Short run equlibrium in perfect competitoin

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5
Q

What are the three short run characteristics with perfect compotition?

A
  1. Fims can make abnormal profits
  2. The firms are allocativly efficient (P=MC)
  3. Firms are not productivly efficenient
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6
Q

What does the Long run diagram for perfect competition look like?

A
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7
Q

3 charicteristics of perfect competition in the Long run?

A
  1. Firms can only make Normal profit.
  2. Frims are allocativly effcient.
  3. Firms are productivly and technically efficent.
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8
Q

2 Market charicteristics of a monopoly market?

A
  1. One firm in the market
  2. High barriers to entry and exit
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9
Q

What does the demand curve look like for a monopoly market?

A
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10
Q

Is there a differance between shortrun and long run equilbrum for a monopoly?

A

No

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11
Q

What does the diagram look like for a Monopoly?

A
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12
Q

3 charicteristics of monoplies?

A
  1. Not allocatively efficent Price does not = MC
  2. Not productivly efficent
  3. Abnormal profits made in both the long and short run
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13
Q

Examples of a natural monoply and reasons why they occure?

A

Railways, electricity and gas

they occure as compotion would be wastefull

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14
Q

3 problems with monpolies?

A
  1. Higher price, lower quality and choice due to monoplies profit maximising (MC=MR)
  2. Inefficent use of resources due to no compotition
  3. Price descrimination
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15
Q

3 Benifitis of monoplolies?

A
  1. EOS so lower price for consumers
  2. Increased investemetn form supernormal profits
  3. Avoids wasteful compotetion
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16
Q

Define monoplolistic compoetition?

A

Many sellers each selling slightly different product

17
Q

4 Market characteristics of Monoplolistic competition?

A
  1. Many firms in the market
  2. products are differentiated by branding or advertising
  3. Firms have a small degree of monoploy power and independant decisons from other firms
  4. Barriers to entry and exit are low
18
Q

Eamples of a monoplistic market?

A
  1. Haidressers
  2. Bakeries
  3. News agents
19
Q

What does the short run equlibrum look like for monoplistic competition?

A
20
Q

3 charicteristics of monoplistic competition in the short run?

A
  1. Firms can make abnormal profits
  2. Firs are not allocativly effcient P does not =MC
  3. Firms are not productivly effcient
21
Q

How does the Long run diagram differ from the Short run diagram of monoplistic competition

A

AR=D moves to the Left only normal profit is made due to firms entering the market due to low barriers to entry.

22
Q

From the digram what are the 3 charicteristics of long run monopolistic competition?

A
  1. Firms are not allocativly effecient P does not =MC
  2. Firms are not productivly effcient
  3. Firms only are making normal profit AR=AC
23
Q

What are the 6 market charicteristics of an oligopoly

A
  1. High market concentration ratio
  2. Decison making is interdependant
  3. high barriers to entry and exit
  4. High level of non-price competion
  5. collusion is commen
  6. Price leadership
24
Q

Explain the Kinked demand curve?

A
  1. Firms fear a rais in price as other firms will lower price to P1.
  2. Consumers will then switch to these now comparable cheeper firms.
  3. Firms also fear a reduction in prices due to other firms following suit.
  4. This then leads to an overall lowering of price due to the interdependance
  5. The graph is elastic above PE but inelastic below.
25
Q

Define overt colusion?

A

Open colusion of price ficing and output

26
Q

What is Tacit collusion?

A

Colusion that is done in an unspoken way

27
Q

3 reasons why collusion is high in oligopolies

A
  1. High market concentration ratio- easy due to small number of firms.
  2. High Barriers to Entry
  3. Collusion is hard to prove often due to lack of evidence
28
Q

In game therory what does the dominent stratagy?

A

The best strategy for that firm irrespective to what other other firms do.

29
Q

In game theroy what is meant by the maximin?

A

When a firm maximises its minimum gains

30
Q

What is the maximax in game theory?

A

Firms maximises its maximum gains

31
Q

5 Charicteristics of the structure a contestable market

A
  1. One or many firms
  2. Barriers to entry and exit are low
  3. Fims compete
  4. Only normal profits made in the Long run
  5. Hit and run tactics due to the low barriers to entry and exit,
32
Q

5 ways of assessing market contestablitlity

A
  1. Size of entry and exit cost: low ones indicate a highly contestable market.
  2. New entrats into the market: sugests that it is contestable.
  3. Low Profitability: strong compotetion so contestable market.
  4. Abesence of non competative practise
33
Q

Examples of a contestable market?

A

Banking, music and travle agents

34
Q

Define a monopsony

A

One buyer many suppliers

35
Q

1 Example of a monopsony?

A

Supermarkets such as Tesco

36
Q

3 Effects of being a monopsonist on the firm ?

A

Increased profits: through forcing suppliers to lower their prices.

Increased rewads for Shareholders: result from more profit is more divendends.

Increased investment.

37
Q

3 Effects of monopsonies on suppliers ?

A
  1. Lower profits: reduced bargaining powers.
  2. Firms exit the industry.
  3. Unemployment: As firms leave the industry
38
Q

2 Effects on consumers of a monopsony?

A
  1. Lower prices due to negotaitions with suppliers
  2. Reduced choice: due to less suppliers, fewer products so EOS

Economics Unit 3 (12 decks)

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