Micro Book 5 Flashcards
Competition, Perfect Competition, Monopolistic Competition, Oligopoly, Game Theory, Price Discrimination, Government Policy
What are the key characteristics of a market in Perfect Competition
Many buyers and sellers
Goods are homogeneous
No barriers to entry/exit
Firms are “price-takers”
Perfect Knowledge
Why are firms the price-takers in a market under perfect competition
The market price is set through the market forces of supply and demand
A consumer would know if they were worse-off at higher prices and would instead use their perfect knowledge to buy from another firm
What describes a market in Monopolistic Competion
Goods are somewhat differentiated
Many buyers and sellers
What describes a market in Oligopolistic Competition
A market is dominated by a few firms between who there is conscious interdependence
What is conscious interdependence between firms
Each firm is affected by the decisions of other firms and they are aware of that
What describes a Monopoly
When a firm IS the industry (25%+ market share)
What is a natural monopoly
Industries with very high fixed costs so it is better to have one supplier
How is a natural monopoly graph different from a monopoly graph
The minimum efficient scale of production is not shown (LRAC and LRMC never meet)
Why does an oligopoly have a kinked demand curve
Demand is price elastic for price increases and demand is price inelastic for price decreases
What is a group of firms acting as one called
A cartel
What is a situation where no player can be better off by changing their own decision
A nash equilibrium
What is price discrimination
A firm is able to charge a different price for the same good or service
What are the conditions needed for price discrimination to take place
Must be able to split the market into distinct groups
Must be able to keep the group seperate at relatively low cost
First-Degree Price Discrimination is?
Charging every customer the maximum that they are willing to pay
Second-Degree Price Discrimination
Price tends to fall as the quantity brought increases
Third-Degree Price Discrimination
Monopolist splits customers into two or more seperate groups
What does market share measure
The proportion of sales accuring to a given number of firms
How is a firm’s concentration ratio worked out
(Sales of Leading X firms) / (Sales of whole industry) * 100
Why is all profit in a perfectly competitive market only in the short run
Due to “Hit and run” entries. Firms join the market and continue to do so which lowers the price
Where would monopolies produce in a competitive market
Where S = MC is equal to D = AR
What is De-nationalisation
A transfer of ownership of state-owned enterprises into private hands
What is Contracting out
When the state enterprises remain in state hands but private firms are brought in to provide services
What is regulatory capture
When regulators “side” with the company that they are meant to be regulating.
What is customer inertia
When customers tend to remain with a provider as it is easier than switching
