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economics multi > Micro > Flashcards

Micro Flashcards

1
Q

costs - Internal economies include

A

Specialization and division of labour
Bulk buying
Financial economies

Technical
Marketing
Risk Bearing

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2
Q

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

A

Profit Satisficing

Sales Maximisation

Social / Environmental concerns

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3
Q

Growth - why companies wish to grow

A

Increase profit
Economies of scale
Market dominance
Risk bearing economies

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4
Q

Growth - Difficulties of Firms Growing

A

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

Profit satisficing
Legal barriers
Access to key locations

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5
Q

Growth - How firms grow

A

Internal expansion

External expansion

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6
Q

efficiency and competition - types of efficiency

A

Productive, allocative, x, dynamic

Efficiencies of scale
Social efficiency

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7
Q

efficiency and competition -Features of Perfect Competition:

A 
Many small firms
Freedom of entry and exit
homogenous
price takers
Perfect information
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8
Q

efficiency and competition -Disadvantages of Perfect Competition

A 
No scope for economies of scale
Undifferentiated products
Lack of supernormal profit
no incentive to develop new technology
market failure
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9
Q

Oligopoly - Non Price Competition

A 
Advertising
Product Development
Loyalty cards
Quality of service
Location
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10
Q

Oligopoly - price wars information

A 
recession
short term
selective
cross subsidising
public interest
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11
Q

Oligopoly - Collusive Behaviour

A

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

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12
Q

Oligopoly - Efficiency of Oligopoly

A

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

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13
Q

monopoly - monopoly disadvantages

A 
Allocative
Productive
X
Less choice
Quality of product
Monopsony
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14
Q

Monopoly - monopoly advantages

A

Economies of scale
International competition

Research and development
Monopolies may be efficient

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15
Q

Monopoly - Examples of Barriers to Entry

A

High fixed costs
Vertical integration
Legal monopoly
Advertising

Being the first firm in the industry
Predatory pricing
Geographical barriers

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16
Q

Monopoly - Collusive Behaviour

A

Price fixing
Vertical price fixing
Collusive tendering
Agreements to limit output

17
Q

Monopoly - abuse of monopoly power

A

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

18
Q

Mergers - Disadvantages of Mergers

A 
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
19
Q

Mergers - Demergers

A

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

20
Q

Labour Market - Imperfections in the Labour Market

A

Trade Unions
Monopsony

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

Discrimination
Difficult to measure productivity
Poor information

21
Q

Poverty - Causes of Relative Poverty

A

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

22
Q

Poverty - Problems of Means Tested Benefits:

A

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

23
Q

Wealth and income - Advantages of Increased Equality

A

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

24
Q

Wealth and income - Problems of Increasing Equality

A

incentives
poverty trap
substantial part of the government’s budget

25
Q

Wealth and income - Benefits of a Minimum Wage

A

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

26
Q

Wealth and income - Disadvantages of Minimum Wages

A

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

27
Q

Wealth and income - Evaluation of Minimum Wages

A

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

28
Q

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

A

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

29
Q

Privatisation - Benefits of Privatisation

A

Reduced government interference
Private companies are usually more efficient
Improved public finances

Increased competition

  • allocative
  • quality of consumer service
  • Firms must be more efficient
30
Q

Privatisation - Potential Problems of Privatisation

A

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

31
Q

Privatisation - Advantages of CPI – X Regulation

A 
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
32
Q

Privatisation - Disadvantages of the RPI - X system

A

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

33
Q

Contestable Markets - Contestable Markets and the Public Interest

A

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

34
Q

Market failure and government failure - characteristics of pure public goods

A

Non-excludability
Non-rival consumption
Non-rejectable

35
Q

competition policy - UK competition policy eval

A 
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
36
Q

Labour markets - Gender and wage inequality explanations

A

human capital development differences
productivity differences
number of hours worked

37
Q

Labour markets - Gender wage gap reduction explanations

A

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

38
Q

Labour markets - Wage differentials

A

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

economics multi (2 decks)

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