market structures (micro)

Question 1

What can the kinked demand curve be used to show?

Answer 1

interdependent decision making by businesses within an oligopoly.

Question 2

What is one of the implication of the kinked demand curve model?

Answer 2

firms within an oligopoly may be reluctant to change prices once they have settled at a certain level.

Question 3

What do we call it in oligopolies when they are reluctant to change prices.

Answer 3

‘sticky prices’

Question 4

What markets does monopsony power exist in?

Answer 4

Both product and labour markets

Question 5

What two types of power does monopsony power give?

Answer 5

Buying or bargaining power

Question 6

What can a monopsony do to their suppliers?

Answer 6

A monoposony can exploit their bargaining power to gain lower prices from their suppliers.

Question 7

What is employment in a monopsony labour market like compared to a highly competitive labour market?

Answer 7

monopsony employer will tend to employ fewer people

Question 8

What are wages in a monopsony labour market like compared to a highly competitive labour market?

Answer 8

A monopsony employer will tend to pay lower wages - wages are not in line with workers MRP (marginal revenue product)

Question 9

What type of labour market is likely to result in wages that are lower than the free market equilibrium wage?

Answer 9

The existence of a monopsony employer.

Question 10

What is the definition of a monopsony?

Answer 10

A market situation in which there is one buyer (of labour or product)

Question 11

Give an example of monopsony buyer of product?

Answer 11

• Supermarkets such as Tesco

Question 12

What does Tesco’s dominant position as a large buyer (monopsony) allow them to do?

Answer 12

• Demand lower prices from its suppliers - especially smaller
  suppliers
• more favourable terms of trade - than its suppliers can achieve elsewhere

Question 13

Give an example of how Tesco has used its monopsony power to exploit suppliers.

Answer 13

Farmers
- significant buyer of apples
- has a monopsony over local apple market
- strict quality standards and pressure on lower prices

Question 14

Positive of product monopsony buyer?

Answer 14

lower prices for consumers

Question 15

Negative of product monopsony employer?

Answer 15

consequences on suppliers - e.g. farmers and their communities struggle to make a living due to lower prices they receive from Tesco’s.

Question 16

What is a technical economies of scale?

Answer 16

Economies that are achieved through use of technology

Question 17

What is a purchasing economies of scale?

Answer 17

Reduced costs made possible by being able to buy raw materials or components in bulk

Question 18

What is a marketing economies of scale?

Answer 18

Being able to afford more effective advertising

Question 19

What is a financial economies of scale?

Answer 19

Receiving larger loans at a reduced interest rate.

Question 20

What is a managerial economies of scale?

Answer 20

Being able to afford to employ more specialist managers.