Markets and Externalities Flashcards
What is the formula for productivity?
Productivity = Total Production/ Number of Workers
What is productivity?
Output per worker over a given period of time.
What is unemployment?
People who are not employed and are currently looking for a job.
What are ways you could improve productivity?
- Investing in Capital
- Specialisation
- Providing more training for workers
- Boosting worker motivation
What is a competitive market?
A market with a large number of buyers and sellers
What are 3 features of a competitive market?
- Large Number of Firms
- Low Barriers to Entry
- Low Prices
What is a Monopoly?
A Monopoly is where one firm controls the market, having over 25% of the market share.
What causes Monopoly Power?
- Merger/Takeover: Rival firms teaming up or take over one of them.
- Statutory Monopoly: The government owns it, and no other firm can set up
- Internal Expansion: Opening new stores, allowing them to grow in size and gain market share.
- Branding: Strong branding allows firms to increase market share.
How can governments reduce monopoly power?
- Ban Mergers
- Forcing Firms to De-Merge
- Introduce Price Capping - set a maximum price
- Reducing Barriers to Entry
What is an Oligopoly?
An Oligopoly is where 5 or fewer firms own 50% of the market share or more.
What are the non-price factors that Oligopolies compete in?
Promotion: Firms may advertise special offers or even introduce schemes like loyalty cars to increase customer awareness and develop brand loyalty.
Products: Could sell limited edition products to attract more customers
Place: Could offer online delivery or open stores in more convenient locations.
Why don’t Oligopolies compete on Price?
No firms compete in price because if one firm reduces their prices, everyone else would do the same and that would reduce revenue and thus reduce profit.
Instead, they compete on non-price competition
What is the labour market?
The labour market is the availability of employment and labour in terms of supply and demand for workers
What are wages?
Wages are payments to workers which change over time.
What is a salary?
A salary is a set amount that is paid every year.
What is the National Minimum Wage?
A legal minimum pay flaw set by the government below which can not be paid.
What is Gross income?
Income before tax deductions
What is Net income?
Income after tax deductions
What are the types of incomes?
- Income tax - Tax from income
- Pension Contributing
- National Insurance: tax paid to fund public sector services
- Student Loan Repayment: Repay loans from tuition fees
What is a zero hours contract?
Where a person has no set or guaranteed hours of work. They are not obliged to work a minimum number of hours
What is Market Failure?
Market Failure is when the market fails to allocate resources in the best interest of society as a whole
When does the market fail?
- Public Goods: Free rider problem, people not paying taxes could still use these services.
- Externalities: actions incurred upon a third party not involved in the transaction.
- Monopolies: Can control everything and buyers may have to face higher prices.
- Poverty: They receive government benefits.
What are private costs?
Costs paid by the third party that were involved in the transaction
What are external costs?
Negative effect on a third party not involved in the transaction
What is a social cost?
Overall cost to society (Private + External Costs)
What are 4 government policies that correct externalities?
- Legislation: Laws pass to stop consumption of negative externalities.
- Information: advertising problems with the product
- Subsidies: The government can provide funding to reduce the cost of production for a product, which produces positive externalities.
- Taxation: indirect tax on a good or service
- State provision: Government provides goods or services.
