Micro Flashcards by matt foulerton

costs - Internal economies include

Specialization and division of labour
Bulk buying
Financial economies

Technical
Marketing
Risk Bearing

How well did you know this?

Not at all

Perfectly

profit and revenue - Apart from profit maximisation, firms may pursue other objectives

Profit Satisficing

Sales Maximisation

Social / Environmental concerns

How well did you know this?

Not at all

Perfectly

Growth - why companies wish to grow

Increase profit
Economies of scale
Market dominance
Risk bearing economies

How well did you know this?

Not at all

Perfectly

Growth - Difficulties of Firms Growing

Diseconomies of scale
Lost Perks
Difficult for niche markets
Take over target

Profit satisficing
Legal barriers
Access to key locations

How well did you know this?

Not at all

Perfectly

Growth - How firms grow

Internal expansion

External expansion

How well did you know this?

Not at all

Perfectly

efficiency and competition - types of efficiency

Productive, allocative, x, dynamic

Efficiencies of scale
Social efficiency

How well did you know this?

Not at all

Perfectly

efficiency and competition -Features of Perfect Competition:

Many small firms
Freedom of entry and exit
homogenous
price takers
Perfect information

How well did you know this?

Not at all

Perfectly

efficiency and competition -Disadvantages of Perfect Competition

No scope for economies of scale
Undifferentiated products
Lack of supernormal profit
no incentive to develop new technology
market failure

How well did you know this?

Not at all

Perfectly

Oligopoly - Non Price Competition

Advertising
Product Development
Loyalty cards
Quality of service
Location

How well did you know this?

Not at all

Perfectly

Oligopoly - price wars information

recession
short term
selective
cross subsidising
public interest

How well did you know this?

Not at all

Perfectly

Oligopoly - Collusive Behaviour

Collusion
cartel
Tacit collusion
similar price and outcome to a monopolistic industry

How well did you know this?

Not at all

Perfectly

Oligopoly - Efficiency of Oligopoly

industry acts like a monopolist - Allocative, productive, X

likely to benefit from economies of scale
If there are low barriers to entry in an oligopoly, it will be more contestable

How well did you know this?

Not at all

Perfectly

monopoly - monopoly disadvantages

Allocative
Productive
X
Less choice
Quality of product
Monopsony

How well did you know this?

Not at all

Perfectly

Monopoly - monopoly advantages

Economies of scale
International competition

Research and development
Monopolies may be efficient

How well did you know this?

Not at all

Perfectly

Monopoly - Examples of Barriers to Entry

High fixed costs
Vertical integration
Legal monopoly
Advertising

Being the first firm in the industry
Predatory pricing
Geographical barriers

How well did you know this?

Not at all

Perfectly

Monopoly - Collusive Behaviour

Price fixing
Vertical price fixing
Collusive tendering
Agreements to limit output

Monopoly - abuse of monopoly power

Chapter 2 of the 1998 Competition Act
National or regional market share
The contestability of the market

OFT will look at abuses of monopoly power
Charging excessively high prices
Predatory pricing
Vertical restraints
- Selective or exclusive distribution
- Tie in sales

OFT can act to penalise the firms
10% of annual turnover
recommendations

Mergers - Disadvantages of Mergers

exercise monopoly power:
Higher prices leading to allocative inefficiency
increasing barriers to entry
job losses
increasing prestige and wages of workers
diseconomies of scale
Other monopoly disadvantages

Mergers - Demergers

Splitting up enables a more manageable size
hostile takeover
Prevent conflict
regulator

Labour Market - Imperfections in the Labour Market

Trade Unions
Monopsony

Wages will vary due to geographical differences
Firms may be Non Profit Maximisers

Discrimination
Difficult to measure productivity
Poor information

Poverty - Causes of Relative Poverty

Inequality in Wages and Earnings Growth
Falling Relative value of State Benefits
Unemployment
Regressive Taxes

Poverty - Problems of Means Tested Benefits:

stigmatised
Poverty Trap
fall just outside the qualifying limit
Not everyone will collect them

Wealth and income - Advantages of Increased Equality

society more cohesive
Increasing the incomes of the poorest (consumer spending)
education and training
Tackling unemployment

Wealth and income - Problems of Increasing Equality

incentives
poverty trap
substantial part of the government’s budget

Wealth and income - Benefits of a Minimum Wage

Increase the wages of the lowest paid workers incentive for people to work harder incentives for the unemployed to accept a job Positive effect on monopsony

Wealth and income - Disadvantages of Minimum Wages

If labour markets are competitive a minimum wages could cause unemployment cost-push inflation black market doesn't increase the incomes of the lowest income groups second income

Wealth and income - Evaluation of Minimum Wages

The effect of a min wage on unemployment is uncertain - depends evidence from the US and the UK skilled workers just above the min wage may feel they deserve more regional minimum wage

Cost Benefit Analysis - What are the problems with using a Cost - Benefit Analysis?

Difficult to convert external benefits into a common monetary value cannot effectively include the unpredictable events Prices may be distorted by monopoly power or taxes Planning takes a long time and costs may change frequently Difficult to choose a discount rate for future benefits and costs With any project there will be winners and losers The cost of implementing However, there are few alternatives

Privatisation - Benefits of Privatisation

Reduced government interference Private companies are usually more efficient Improved public finances Increased competition - allocative - quality of consumer service - Firms must be more efficient

Privatisation - Potential Problems of Privatisation

Barriers to entry Public services should be run in the public interest Positive externalities

Privatisation - Advantages of CPI – X Regulation

``` incentive to increase efficiency system is flexible act in the interests of the consumer allocative efficiency Cuts in telephone and electricity real prices since 1984 ```

Privatisation - Disadvantages of the RPI - X system

underestimated the potential cost savings of firms regulatory capture hamper investment fewer incentives to cut costs Regulators need to look at more than just price

Contestable Markets - Contestable Markets and the Public Interest

Benefits such as: Lower prices Cut costs espond to consumer preference However there could also be significant economies of scale because the theory of contestable markets doesn’t require there to be many firms Policy makers should look at the degree of contestability Regulators have focused on removing barriers to entry

Market failure and government failure - characteristics of pure public goods

Non-excludability Non-rival consumption Non-rejectable

competition policy - UK competition policy eval

``` more should be referred a narrower market gives rise to greater concentration Depend on conditions Pragmatic tacit collusion difficult to tackle High fines do bite international strength other positives of monopoly ```

Labour markets - Gender and wage inequality explanations

human capital development differences productivity differences number of hours worked

Labour markets - Gender wage gap reduction explanations

human capital of females is catching up More females are becoming employers national minimum wage

Labour markets - Wage differentials

Human capital differences education demand for skilled workers is greater than the demand for unskilled workers