markets

Question 1

what is 1st-degree price discrimination

Answer 1

when each consumer is charged the maximum price they are willing to pay. This means that all consumer surplus is turned to producer surplus. makes it hard to do in most practices. (e.g bidding)

Question 2

what is 2nd-degree price discrimination

Answer 2

where lower prices per product are charged for large quantities sold. this encourages larger spending and only turns some of the consumer surpluses into producer (e.g bulk-buying)

Question 3

what is 3rd-degree price discrimination

Answer 3

where a firm charges different prices for the same product to different segments of the market. this means that sellers can maximise profit as different groups have different elasticites (e.g railcards for under 25’s)

Question 4

define oligopoly

Answer 4

where a few large firms control the market and have:
* interdependence (actions of one firm affect the other firms)
* differentiated goods
* high barriers to entry and can collude or be competitive to their advantage.

Question 5

what is tacit collusion

Answer 5

an informal collusion where there is no formal agreement between firms, and so neither lower price as it is better for both to not compete

Question 6

what is formal collusion

Answer 6

an agreement between firms, called a cartel and is almost always illegal

Question 7

what reasons are there for a firm in an oligopoly to behave competitively

Answer 7

• lower costs than other firms
• relatively large number of big firms
• similar goods
• low barriers to entry

Question 8

what reasons are there for a firm in an oligopoly to behave collusively

Answer 8

• firms share similar costs
• relatively few firms (can see what other firms are doing)
• high brand loyalty
• high barriers to entry

Question 9

define allocative efficiency

Answer 9

• where the price of a good is equal to the price consumers want to pay for it.
• when mc=ar

Question 10

define productive efficiency

Answer 10

• when mc=mr
• when average costs are lowest

Question 11

define dynamic efficiency

Answer 11

using supernormal profit or loans to innovate or invent product, or lowering cost of production, improving efficiency in the long run

Question 12

what is x-inefficiency

Answer 12

when there is unnecessary costs or waste (e/g organisational slack