Micro Easter Topics Flashcards
What is a Monopoly!?
When one firm controls the market with a 25% or more share
Name two of the main reasons for a monopoly?
High barriers to entry preventing other firms entering the market
Few competitors in existence
What is a barrier to entry?
Restrictions to enter and leave a market
Name 7 features of a monopoly!?
- High Prices
- Poor Quality
- Low Quantity
- Poor information between firms and customers
- Inelastic demand curve
- Firms are able to influence price
- Some product differentiation
What is the concentration ratio?
The combined percentage market share of the top 5 firms in the market
Name 7 features of perfect competition?
- Low Prices
- High Quantity
- Good Quality
- No product differentiation
- Perfect information
- Elastic demand curve
- Cant influence price
What is meant by the term Survival as a objective of a firm?
The state of continuing to exist or avoiding failure
What does it mean for a firm to meet the objective of ‘growth’?
This is increasing the firms sales volume or total revenue over a period of time, usually measured annually (yearly)
What is perfect competition?
Where there are lots of firms in the industry who have to fight to sell to customers in order for the customers to get the best quality products
Describe the relationship between Quantity and Price on the demand curve
If price increases then demand is lower as less people can afford to pay for it, of prices are low then demand rises
What are the 6 factors that affect demand?
Income Substitutes Complements Advertisements Time of year Technology
What four things effect price elasticity of a good?
Degree of necessity - necessary products are inelastic as they are essential no matter the price
Habit-formed goods - good such as tobacco are inelastic as people are addicted and feel it is crucial to have the product
Substitutability - products with close alternatives are elastic as customers can get better deals elsewhere
Time - in the short run consumers may not be able to find replacement products making it inelastic but in the longer run it become elastic as alternatives can be found
Describe the relationship between quantity and price on the supply curve?
If prices are high more firms want to produce in that market as they can make higher profit therefore quantity rises, but if price is low then less firms can successfully supply the product and make a profit
Name the 4 factors that cause the supply curve to shift?
Taxes and subsidies to a business
Costs of production
Changes in technology
Name the 3 main factors that influence price elasticity of supply?
Spare capacity - as if firms have more space available its elastic whereas if they are working at full capacity then its inelastic
Time - it takes firms time to increase production as they may need to employ new resources so in the short run supply cant change much so supply is inelastic whereas long run supply can increase more becoming elastic
Ease of switching products - if its easy to switch products its elastic but if its difficult is inelastic
What is equilibrium?
The price suppliers are willing to sell and consumers are willing to buy, where supply and demand cross
What is a production possibility frontier used to show?
It is used to show different combinations of output for two products, showing the difficulty to allocate resources in a economy with the issue of scarity
What does productively efficient mean?
Being on the PPF curve, where you are maximising all of your resources
What is allocative efficiency?
Using resources to maximise the satisfaction of what people want
What is an opportunity cost?
Giving up your second best option to get your first
Why is the PPF a concave shape?
Because opportunity costs increase the higher level of outputs you make
What causes the PPF to move outwards?
The economy growing and expanding
What is ceteris paribus?
All other things being equal
What is effective demand?
This is demand with the ability to pay, not just a wish or desire
What is specialisation?
This is where workers specialise in specific jobs or tasks, as well as firms who specialise in producing specific products
What is division of labour?
Breaking a complex task into smaller tasks which different sections have specific duties
Why is specialisation effective?
Because it enables you to have specialist workers who can work to their strengths producing the best quality production improving future outputs
What is a disadvantage to specialisation?
Gets repetitive and boring as worker does the same task each day
How do you calculate total costs?
Fixed costs + variable costs
What is average cost?
Total cost of production/output
What is the difference between revenue and total revenue?
Revenue is how much you make for a single product whereas total revenue is how much you make for all your products
What does economics of scale mean?
The benefits to large scale production resulting in lower average unit costs
What are the 5 types of economies of scale?
Technical - as firms get bigger they can get better capital equipment e.g. Better and bigger lorries
Financial - easier to access finance and get loans as they have lots of assets
Purchasing - unit costs lowered as they can buy in bulk
Marketing - advertising expenses can be spread over more units
Managerial - can employee more expert managers for specific sectors
What is diseconomies of scale?
Where you are becoming to big and stop being efficient, e.g. Too many managers sat doing little work
What are the 2 types of diseconomies of scale?
Ineffective coordination - ideas and information cannot be communicated through the business from bottom to top
Managerial lack of output - you are paying lots of managers who do little work and therefore are overpaid and have less impact on the business
What is profit maximisation?
When a firms total sales are the highest above total costs of production
What is Sales maximisation?
Sales maximisation - when sales revenue is maximised
What is growth maximisation?
When a firm tries to expand and become bigger
What is Market share maximisation?
Firm tried to maximise it percentage market share
How can you judge if a market is an oligopoly?
If the 5 firm concentration ratio is above 80%
What is a private good?
A private good is where one persons consumption of the good means that the good is not available for other people e.g. Bread
What are the two kinds of public good?
Non-rival - one persons consumption of a good doesn’t effect anyone else’s e.g. Street lights
Non-excludable - once provided it is impossible to stop other individuals from using them e.g. Beaches and parks
What is complete market failure?
There is no market at all, called a missing market
What is partial market failure?
When a market exists but there is a misallocation of resources that doesn’t maximise social welfare
What is a quasi-public good?
A public good that shares features of a private good, e.g. Toll road or private beach
What is a merit good?
A merit good is a good under provided and under consumed
What is a demerit good?
A demerit good is a good that is over provided and over consumed
What is government failure?
This is when governments intervene but they have unintended consequences and make the allocation of resources worse rather than better
What is the rationing function?
Shortages and surpluses
What is the signalling function?
How price helps firms choose weather or not they should move into the market e.g. If prices are increasing they should move in, if prices fall move out
What is the allocative function?
This is where resources are moving from where they are not needed to where they are
What is a pro free market?
Firms know what is best to produce and government should stay out of the way
What are Interventionist economists?
Believe governments should correct market failure by intervening
What 3 reasons can cause government failure?
Inadequate information
Conflicting objectives
Administrative costs
What is geographical immobility?
When you cant move jobs to other areas because house prices are too high and so you cant afford to live in nearby areas
What is occupational immobility?
When workers find it hard to move between jobs because of lack of skills or outdated skills
What is inequality?
The difference between the highest earners and the lowest earners
What is social mobility?
The ability to start at the bottom of the income ladder and work your way up
