Micro Essentials Flashcards
Three measures of efficiency
Allocative
Productive
X-efficiency
Five characteristics of perfect competition
Profit maximising
Perfect information
Large number of buyers and sellers
Homogenous goods
Price taker
Three arguments for allowing a monopoly
Dynamic efficiency
Economies of scale
Patents - which encourage innovation by firms
Five types of market failure
Information failure
Self interest
Tragedy of the commons
Income inequality
Monopoly Power
Four remedies for a monopoly
Deregulation
Windfall tax
Quality/performance targets
Privatisation
Three labour market imperfections
What is consumer surplus
The difference between the amount the consumer is willing and able to pay and the amount they actually pay
Name three types of anti competitive behaviour
Limit pricing
Collusion
Mergers
What is a complex monopoly
Exists if at least one ???
Three conditions needed for price discrimination
Price maker
Good information of consumers
No price seeping
What is a contestable market
A market where incumbent firms are under threat of entry by many potential entrants
What is the difference between absolute and relative poverty
Absolute - cannot afford basic necessities
Relative- a person earning income just below average (60%)
Name five possible causes of poverty
Poor education
Health issues, age
Massive wage inequality
Poverty trap
Poor paying job
5 strategies which government can employ to reduce poverty
UBI adv: eliminates relative/absolute poverty dis: may disincentives people to join workforce and to just live off of the wage
Minimum wage adv: encourages people to join workforce and improve human capital to get better job dis:unemployment as firms may not be able to afford
Subsidise education/health care
Progressive taxation
Means tested benefits
Four reasons why tax is collected
To internalise negative externalities
Disincentivise unwanted behaviour
Fund public services
Redistribute income
Difference between income and wealth
Income - a flow of money over a time period
Wealth - value of assets owned -> can generate income e.g. homes rented
What are the different types of tax
Proportional tax - everyone is taxed the same regardless of income
Progressive tax - rich pay more tax
Regressive tax - poorer pay more tax
Why do average costs fall then rise
Economies and diseconomies of scale
Name the different types of economies of scale
Risk bearing
Financial
Managerial
Technical
Marketing
Purchasing
Internal and external
Give different reasons for diseconomies of scale
Inefficient communication between workers etc.
Us and them attitude
Workers don’t feel as valued-> decreased productivity
If all raw materials locally were used then would have to pay higher prices to buy materials from elsewhere
What stops firms being efficient
When there isn’t incentive to cut costs
Can monopolies make abnormal profit in the SR
Yes and LR
Advantages of private ownership
Increased focus on efficiency as profits are to be maximised
X-efficient
Profit maximisation
Efficiency (allocative, productive, x-efficient)
Increased quality + choice of goods
Reinvents small profits over time to try getting ahead of other firms
The economic problem
Infinite needs and wants but limited resources
Term for when msrket doesn’t lead to best allocation of resources
Allocatively efficient
Public goods
Non rival - they cannot stop anyone from consuming the good
Non excludable - one person consuming doesn’t exclude someone else from also
What do public goods lead to
Free rider problem and tragedy of the commons
Merit/demerit goods
Merit goods produce positive externalities when consumed but are underconsumed in the free market due to irrational consumers not considering long run benefits
Demerit goods when consumed lead to negative externalities in consumption and are overconsumed in the free market as consumers are irrational and don’t consider the long term costs of what they are doing
Solutions to merit and demerit goods
Subsidies for merit goods to incentivise consumption
Taxes on demerit goods to disincentivise consumption
Monopoly
A single seller in a market which has high barriers to entry
Solutions to a monopoly
Deregulation to encourage competition
Windfall tax
Quality control
Inequality of income and wealth
Low income households have lower standard of living and no assets to bring in income
High income household are the opposite
Solutions to inequality of income and wealth
Taxes
UBI
Minimum wage
Benefits
Subsidies on merit goods e.g. school
