Mirco Flashcards
1
Q
Accounting profit
A
Level of profit that is reported in business accounts. It does not take into account the oppurtunity cost of investment
2
Q
Asymmetric information
A
When one party (consumer or producers) has more or better information about a product than the other party
3
Q
Bilateral monopoly
A
Labour market that includes a trade union and a monopsony employer
4
Q
Buffer stock system
A
System of holding and releasing stock to maintain a market price despite supply fluctuations
5
Q
Ceteris paribus
A
Other things being equal - the assumptions that everything else stays the same
6
Q
Collusion
A
Scenario in which firms work together in secret to gain an unfair market advantage
7
Q
Competition policy
A
Legislation and regulations that aims to make a market more competitive
8
Q
Competitive demand
A
When consumers demand one or the other product - products are substitutes
9
Q
Competitive supply
A
When producers choose to supply one or the other product with given factors of production
10
Q
Compliment
A
A good with a negative XED. As the price of product B increases, the quantity demanded of a product A decreases
11
Q
Composite demand
A
When a product is demanded for multiple possible uses
12
Q
Concentration ratio
A
Way of measuring the market dominance of the top few firms in the market by adding up each firm’s individual market share and looking at this as a percentage of total market
13
Q
Consumer surplus
A
Difference between the price consumers are willing and able to pay at the market price
14
Q
Contestable market
A
Market structure in which no firm can dominate enough to make supernormal profits
15
Q
Contraction in demand
A
A decrease in the quantity demanded
16
Q
Contraction in supply
A
A decrease in quantity supplied
17
Q
Corporate social responsibility
A
When a business aims to make a profit, do good for society and improve the environment
18
Q
Cross elasticity of demand
A
Measures the responsiveness of demand for one product to a change in the price of another product
19
Q
Decrease in demand
A
A shift inwards of the demand curve so that there is a decrease in quantity demanded at every price
20
Q
Decrease in supply
A
An inward shift of the supply curve so that there is a decrease in quantity supplied at every price
21
Q
Demand
A
A consumers ability and willingness to purchase goods and services at a specific price
22
Q
Demands curve
A
Relationship between the price of a product and the quantity demanded by the market
23
Q
Demand for labour
A
Willingness and ability of a firm to hire labour at different wage rates
24
Q
Demerit good
A
Good that is likely to be over consumed in a free market because the consumer does not anticipate the lack of benefits
25
Derived demand
Where demand is based on what that thing can produce, not the thing itself, e.g the demand for labour
26
Direct taxation
Amount levied on a business or an individual that must be paid to the the government
27
Diseconomies of scale
Increases in average costs that came occur form the growth of a business
28
Division of labour
Splitting up a task into smaller activities to be able to produce more efficiently
29
Dynamic efficiency
Incentive to innovate products and processes to become productively efficient in the long term
30
Economic agents
Key groups in involved in solving the economic problem, including governments, firms and households
31
Economic goods
Goods that are scarce I.e. there is not an unlimited supply of these goods
32
Economic rent
Any amount above the minimum needed to keep a factor of production in its current use
33
Economics
The study of how scarce/limited resources are used in the world
34
Elasticity
Responsiveness of a change in one thing to a change in something else
35
Excess demand
Scenario in which the market price is too low meaning there are unsatisfied consumers in the market
36
Excess supply
Scenario in which the market price is too high meaning there are unsold products in the market
37
Extension in demand
An increase in the quantity demanded
38
Extension in supply
An increase in the quantity supplied
39
External economies of scale
Reduction in average costs that can occur from the growth of an industry
40
Externality
A cost or benefit to a third party that has not been accounted for in the market transaction
41
Factors of production
Land, labour, capital and enterprise the building blocks needed for a business to operate
42
Fixed costs
Costs that do not change as output changes
43
Free goods
Resources that are usually not seen as limited such as sunlight or air
44
Free rider problem
Occurs when a person benefits from consuming a shared resource or good without paying for that good
45
Government failure
When government intervention does not reduce market failure and may even increase it or introduce new failure into the market
46
Growth maximisation
When a business aims to increase its size as much as possible
47
Incentive
Something that motivates an action - relates to profit, prices and social welfare
48
Increase in demand
A shift outward of the demand curve so that there is an increase in quantity demanded at every price
49
Increase in supply
A shift outwards of the supply curve so that there is an increase in the quantity supplied at energy price
50
Indirect taxation
Amount levied on a producer to increase the cost of production
51
Individual demand
One consumers willingness and ability to purchase a product of service at a given price
52
Individual supply
One business willingness and ability to sell a product at a given price
53
Inferior good
When income changes the quantity demanded of this good will change by a smaller proportion in the opposite direction
54
Information failure
When consumers and/or producers do not have all of the information when making decisions, leading to market failure
55
Information provision
Act of informing the public about the true nature of a product or market
56
Interdependence
Scenario in which firms base their decision-making on the decisions of other firms in the market
57
Internal economies of scale
Reductions in the average cost that can occur from the growth of a business
58
Joint demand
When products are demanded together - complements
59
Joint supply
When products are supplied together often as a byproduct
60
Kinked demand curve
Illustrates an elastic response to an increase In price and in an inelastic response to a decrease in price
61
Labour market flexibility
Ability of workers to move between occupations and industries in order to respond to changes in wages and conditions of work
62
Law of diminishing returns
Theory that in the short run when at least one factor production is fixed the average return from a factor of production decreases
63
Legislation
In relation to the economy, laws that a government puts in place to govern the production and consumption of products
64
Long run perfect competition
Market structure that has allocative and productive efficiency
65
Loss
If a business has higher costs than revenue, it will make a loss
66
Luxury good
A good for which when income changes the quantity demanded will change by a larger proportion in the same direction
67
Marginal costs
Costs of producing one more product
68
Marginal utility
Benefit gained form consuming one more unit of a product
69
Market demand
The sum of all consumers’ willingness and ability to purchase a product or service at a given set of prices
70
Market disequilibrium
Any situation where supply does not equal demand - scenario where there is excess supply or demand
71
Market economy
Allocation of resources is decided by the interaction of supply and demand (market forces)
72
Market equilibrium
Point at which the quantity supplied is equal to the quantity demanded of a particular product
73
Market failure
Failure of the market system to allocate resources efficiently
74
Market supply
Sum of all businesses’ willingness and ability to sell a product at any given set of prices
75
Monopolistic competition
Competitive market structure with a downward sloping demand curve and the ability for a firm to make supernormal profit in the short run
76
Monopoly
Situation in which there is a single seller in the market with no competitors
77
Monopsony
A single or dominant buyer of a product
78
Moral hazard
When one party (consumers and producers) changes their behaviour die to asymmetric information, which causes extra costs to the other party
79
Movement along the demand curve
Change in quantity demanded that results from a change in the price of a product
80
Movement along the supply curve
Change in quantity supplied that occurs from a change in the price of a product
81
Natural monopoly
Type of monopoly in which there are large economies of scale to be gained to the point where only one firm is viable
82
Negative externality
Cost to a third party that has not been accounted for in the market transaction
83
Negative externality of consumption
Cost to a third party that arises from consumption of a product. It has not been accounted for in the market transaction
84
Negative externality of production
Cost to a third party that arises from production of a product. This cost has not been accounted for in the transactions in the market
85
Non-excludability
When potential consumers cannot be prevented from consuming a good without paying for it
86
Non-price competition
Scenario in which firms compete on aspects other than price, such as the product, location and branding
87
Non-rejectability
When consumption cannot be prevented by a consumer
88
Non-rivalry/non-diminishability
When consumption of a good does not prevent consumption by another person
89
Normal good
When income changes, the quantity demanded of this good will change by a smaller proportion in the same direction
90
Normal profit
Minimum amount of profit required to convince an owner to stay in the market
91
Normative statement
Opinion-based statements that one might agree or disagree with
92
Oligopoly
Market structure with a few dominant firms
93
Opportunity cost
Cost of the next best alternative forgone when a decision is made
94
Overt collusion
Scenario in which firms work together with a formal agreement
95
Perfect competition
Market structure with many buyers and sellers that can achieve allocative and productive efficiency in the long run
96
Planned economy
The government controls the factors of production and decides on the allocation of resources
97
Positive externality (external benefit)
Benefit to a third party that has nit been accounted for in the market transaction
98
Positive externality of consumption
Benefit to a third party that arises from consumption of a product that has not been accounted for in the market transaction
99
Positive externality of production
Positive to a third party that arises from the production of a product that has not been accounted for in the market transaction
100
Positive statement
Factual statement that can be tested
101
Price control
A minimum or a maximum price for which a product must be sold
102
Price discrimination
The ability of a firm to charge different prices to different customers
103
Price elastic
When price changes, the quantity demanded changes by a larger proportion
104
Price elasticity of demand
The responsiveness of demand after change in price
105
Price elasticity of supply
Measures of responsiveness of supply after a change in price
106
Price elastic (supply)
when price changes the quantity supplied will change by a larger proportion
107
Price inelastic (supply)
When price changes the quantity supplied will change by a smaller proportion
108
Price inelastic (demand)
When price changes, the quantity demanded changes by a smaller proportion
109
Price maker
A firm that has the ability to choose at what price it sells its products
110
Price taker
An individual or firm that must accept the ruling market price as it lacks the power to influence the market price
111
Principal-agent problem
The potential disagreement over the objectives of the managers (principles) and those of the owners (agents)
112
Producer surplus
Difference between the price at which producers are willing and able to supply a product and the market price
113
Product differentiation
Features or elements that make one product different from its competitors often used with sticky prices
114
Productivity
Amount produced in relation to 1 unit. E.g. 1 unit of labour
115
Profit
Amount of money a business gains form its sales after it has accounted for all of its costs
116
Profit maximisation
When a business aims to have the most difference between total costs and total revenue, leading to the highest profit
117
Profit satisficing
When a business sets a level of profit that it believes will be enough to keep the owners satisfied
118
Public goods
Goods that have the characteristics of being non-excludable, non-rivalrous, non-rejectable and with zero marginal cost
119
Public/private ownership
Joint initiative between government and a producer in order to increase supply to a market
120
Rationality
Assumption that each economic agent acts in their own best interests
121
Regulation
Rules that are specific to an industry or market and that govern the production or consumption of a product within that industry/market
122
Reward for the factors of production
What needs to be returned by a business for using each of the factors of production
123
Sales revenue maximisation
When a business aims to sell at a price that allows it to make the most profit through sales
124
Sales volume maximisation
When a business aims to sell as many units as possible
125
Scarcity
When there is a limited amount of something
126
Short run perfect competition
Market structure that has allocative efficiency but not productive efficiency
127
Social welfare
Wen a business aims to make society better through its actions
128
Specialisation
Focusing on one activity it be able to produce efficiently
129
Sticky prices
Scenario in which the price of a good is slow to change despite changes in the market that suggests a different price is optimal
130
Subsidy
Amount paid to a business to produce products
131
Substitute
A good with positive XED as the price of B increases the quantity of demanded of A also increases
132
Supernormal profit
Profit made above normal profit
133
Supply
Ability and willingness of a firm to sell products at a given price
134
Supply curve
Relationship between the price of a product and the quantity supplied by a business
135
Supply of labour
Ability and willingness of households to work at different wage levels
136
Tacit collusion
Scenario in which firms work together without a formal agreement, often by observing other firms in the market
137
The economic problem
The problem of how to make the best use of limited or scarce resources
138
Total costs
All costs incurred by a business
139
Total revenue
The money a business receives from all of its sales
140
Total utility
Total benefit gained from consuming a product
141
Tradable pollution permits
System that forces producers to include the costs of pollution in their production decisions
142
Trade-off
A sacrifice that is made in order to gain something
143
Trade union
Collection of workers usually in the same or similar industry that collectively bargains for the workforce on issues like fairness of pay, working conditions and benefits
144
Transfer earnings
Minimu amount needed to keep a factor of production in its current use
145
Unit labour costs
Average cost of labour per unit of output
146
Utility
Benefit Gained from consuming a product
147
Utility maximisation
When the managers of a business aim to increase their own happiness as much as possible
148
Variable costs
Costs that change as output changes
149
Wage elasticity of demand for labour
Responsiveness of the quantity demanded for labour to changes in wages
150
Wage elasticity of supply of labour
Responsiveness of the quantity supplied for labour to changes in wages
151
X-inefficiency
Lack of incentive to reduce costs
152
Zero marginal cost
When production of an additional unit does not add extra costs to the business
153
Evaluate extent to which government always acts rationally
Evaluation
- does government always have full picture
- influenced by political agendas
- may act in response to a situation as opposed to proactivity
- focus on short term and opposed to long term prosperity - especiallly as shirt term governments
- media and public perception more important that actions
Judgement
- political focus
- media influence
- type of economy
154
Evaluate how job specialisation addresses problem of scarcity
Analysis
- quicker production - lower costs
- decrease in production costs
- productivity increased
- higher quality and increased demand
- motivated workers - increased productivity
Evaluation
- higher wages for specialists - increased costs
- higher training costs to specialise workers
- gaps if workers are absent
Judgement
- nature of job
- timescale
- efficiency of labour vs capital
155
Evaluate the usefulness of YED estimates to a firm
Analysis
- Allows firm to expand supply
- make decisions about advertising and promotion
- estimate the effects of changes on its revenue
- can help set prices e.g. peak and off-peak
- response in economic cycle
Evaluation
- reliability of data - based on estimates
- assumes all incomes increase but the amenities amount
- time-frame - annual estimate or an immediate effect
- costs of increasing supply - increased labour costs - marginal cost
156
The effectiveness of incentives
- size of incentive
- the timescale involved
- the type of good/service
- the objectives of economic agents
- other changes in makert/economy
157
Advantages of planned economy
- The government and focus resources on where they are most needed in the economy
- Price can be controlled so that those most in need an access goods and services
- Fewer resources are wasted on duplicating goods and services
- there can be less inequality of incomes and wealth
158
Advantages of mixed economy
- The government can decide which resources to control
- Market forces can be used from goods and services that are considered less important
159
Advantages of market economy
- Having multiple businesses all competing against on each other is likely to lead to lower average costs
- Competition between firms can lead to greater efficiency-firms focus on tta areas in which they can be most efficiency
- Firms are more likely to innovate when there is a profit incentive
- People have a incentive to work in order to earn money to purchase goods and services
160
Usefulness of the concept of opportunity cost
- producers deciding whether t invest in a new piece of machinery or not
- Consumers deciding whether to purchase a new car
- Governments deciding to spend on education or healthcare
161
Advantages of division of labour
- quicker production process
- able to produce more goods and services
- lower average cost of production
162
disadvantages of division of labour
- can be demotivating for the workers to focus on one small task
- A single worker absent or piece of capital equipment malfunctioning can stop whole production process
- May be a barrier to entering a market for smaller firms that cannot afford the investment
163
effectiveness of division of labour and specialisation
- the nature of the good and service - will help car manufacturing but not the process of cutting hair
- The importance of price to consumers - consumers are often willing o pay more or goods and service that have been made by skilled labour rather than mass production
- changes in technology - firms cannot affrc yo but specialist capital or to train workers because process changes so often
164
Factors affecting shifts in demand
- income
- price of complementary goods
- price of substitutes
- tastes and fashions
- advertising and marketing
- size of population/target market
165
Factors affecting shifts in supply
- costs of labour
- costs of capital
- cost of land
- technology
- price of jointly supplied products
- price of competitively supplied products
- taxation
- subsidies
166
Evaluation of impact on related markets
- extent of substitutes - weak substitutes still choose expensive brand as they prefer it
- extent of complement - butter has many other uses not just for bread and therefore increased price of bread may not affect butter price
- time frame - short term decrease in price o petrol is unlikely to cause people to buy cars
- size of price change - small change in price for a good that i snot expensive is unlikely to have major impact
167
Factors that determine the value of PED
- The availability of substitute products - likely to be more elastic as consumer can purchase similar product ie different brands
- necessity of product - i.e few or no substitutes more likely to be inelastic consumers will continue to purchase it in same quantity
- proportion of income - if large proportion likely to be more elastic because consumers won't be able to afford a price increase
- Addiction - want to continue purchasing even if price increases more inelastic
- time period - in long term period a switch their consumption to lower price alternative
168
Factors that affect PES
- time - The shorter the time period the harder it is for firms to increase their production in response to higher prices. long term = more price
elastic
- Availability of Producer Substitutes (ease of mobility of factor substitutes)- good has a lot of producer substitutes, supply will be more elastic. resources can be moved from making one product to making the one that has risen in price.
- The ability to store stock - good can easily be stored (it’s not perishable) then the producer can use their stored stock to release the good on to the market. This makes the good more price elastic in supply.
- The level of capacity in the industry - spare/unused capacity supply will be more price elastic as output can be increased reasonably quickly.
- Rate at which costs increase - If the costs of increasing output increase rapidly then supply will be price inelastic as firms will not want to incur large costs.
169
Interpreting YED
- Luxury = 1 to ∞ relatively small. increase in income can lead to large increase in demand ex holidays or jewellry
- normal good = 0 to 1 buy more ther more money we have ex clothes
- no relationship = 0 need the same quantity no matter what income is ex medicine
- inelastic = 0 to -∞ buy more as income falls as it is more affordable ex frozen pizza and fast food
170
Interpreting XED
- Close substitutes = 1 to ∞ relatively small increase in price means that consumers switch to substitute product by larger amount
- weak substitutes = 0 to 1 increase in price means that consumers switch to substitute product by relatively small amount
- no relationship = 0 no change between goods when price of one increases
- weak complements = -1 to 0 increase in price means that consumers purchase less of complementary products by relatively small amount
- Close complements = -∞ to -1 relatively small increase in price means that consumers purchase less of complementary products by larger amount
171
evaluation of merit goods and demerit goods
- the nature of the product - product may be under or or over consumed but some have a bigger effect on consumers like sugary drinks and obesity
- externalities may be involved - affect society not just consumer
- which consumers are involved - affect poorer members of society more than others
172
evaluation of the provision of public goods
- government provision - national defense is a public good and provided by the government for the benefit of all if gov did not provide it it would be underprovided because each individual consumer would want to spend significant amount of money on its provision
173
factors affecting why government provides public goods
- opportunity cost - what would it give up spending on to provide spending on another sector
- cost of provision - increases taxes to be able to provide the public good
- risk of under provision
- public perception - is good really needed, would public prefer gov spending on something else
- politics - left-wing prioritise provision of public goods and right-wing believe free-market is better
174
effectiveness of tax
- PED - inelastic are likely to see high price increases for the consumer but little change in quantity
- XED - if product can be easily substituted for one without the same level of taxation
175
effectiveness of a subsidy
- PED - price elastic are likely to see a relatively small price change for the consumer leading to large change in quantity
- XED - if consumers can switch to the subsisdised product then a relatively small subsidy can lead to a large increase in quantity
176
effectiveness of buffer stock
- product must be able to be stored in some format
- cost of storage may be added leading to inefficiency
- price ceiling and floor my be set incorrectly my led to excess supply or demand every year
177
effectiveness of legislation
- punishment for breaking law - must be seen as an effective deterrent
- chance of being caught
- costs of enforcement - limited funds available to enforce a range f laws - cost of enforcing pollution control may be too high
178
effectiveness of tradable pollution permits
- price of permits - too low negative externality continues or worsens
- pollution will continue - rewards firms for cleaner production but many firms absorb cost and continue to pollute
- competitiveness of market - large firms buy all permits forcing smaller businesses out of market
179
Causes of government failure
- estimating extent of market failure
- Cost of intervention
- political agendas
- Lack of a profit incentive
- Regulatory capture - intervention strengths failure as firms operating know most about failure not government
- Moral hazard
180
consequences of government failure
- costs leading to opportunity cost of not being able to pay for other government projects
- intervention may ea to exciting frms leading to unemployment or loss of industry
- disincentivizes films from increasing production to the most efficient points
181
Evaluation of business objectives
- stage business is at - new business is less likely than an established business to set profit max as objective
- owner wishes - businesses deliberately set up as non-profit organisation - charity
- timescale - profit ax a s long-term objective but in the short run they may focus on other objectives in the short run
- state of macroeconomy - respond to macroeconomic conditions (recession) by setting objectives that suit those conditions
182
Internal economies of scale examples
- purchasing - negotiate lower costs or bulk buying
- Technical - buy better tech
- Marketing - afford mass-marketing promotion
- Management - employ specialist managers who are more efficient
- Financial - negotiate lower costs I.e. rate of interest
183
External economies of scale examples
- Infrastructure - industry in a particular area increases - better communication and transport links
- Tech and skills- more people train and other business’s develop better tech and capital
184
Examples of diseconomies of scale
- communication
- Coordination - organising complicated production process
- Motivation - not every manager can motivate employees os productivity decreases
185
evaluation of economies of scale
- demand for product - market may not demand the increase in output . if firm increases production to MES then it needs to be able to sell all of its output to take advantage
- nature of product - manufacturer will benefit from technical economies of scale but hairdresser is unlikely to
- technological advancement - led to some smaller firms being able to access savings once only available to larger firms
- importance of price - economies of scale allows business to charge a lower price but if product is inelastic may not be a incentive to produce at MES
- nature of product or service - tend to benefit from economies of scale more than others
186
Evaluation of perfect competition
- low profit margins all consumers have access to the same products and naturally gravitate towards the lowest prices - firms cannot set themselves apart by charging more does higher quality goods
- absence of innovation - the prospect of greater market share and eating themselves apart form the competition is an incentive for firms to innovate and make petter products, but no firm posses a dominant market share meaning the long term profitability is zero
- absence of economies of scale - low to no profit means companies have less to invest in expanding their production capabilities which would be bring down costs and increase profit but the presence of several small firms cannibalising the market or same product prevents this and makes sure average firm size remains small
187
advantages of a monopoly
- can be dynamically efficient - more profit more innovation
- gain economies of scale reducing average costs
- may be able to compete internationally
- supernormal profits can be reinvested creating more jobs and new products
- potential of becoming a monopoly may incentivise a firm to be more successful
- can avoid duplication of effort - inefficient to run two rail companies
188
disadvantages of a monopoly
- high prices for consumers
- X-inefficiency leading to higher average costs
- less incentive to innovate due to a lack of competition
- a monopoly can be so large that it suffers from diseconomies of scale
- less choice for consumers
- allocatively inefficient
- productively inefficient
189
advantages and disadvantages of a natural monopoly
same as a monopoly
- advantage of economies of scale is so great that it may be logical for government to allow monopoly to exist
- government may need to step in and regulate the market
190
advantages of monopolistic competition
- greater choice of products than a monopoly
- some product differentiation there is some incentive for firms to innovate
191
disadvantages of monopolistic competition
- lack of economies of scale leading to higher-priced products
- excessive advertising could be a waste
- neither productively or allocatively efficient in long or short run
192
Advantages of oligopoly
- dynamically efficient because market share is protected - more profit and innovation
- price stability in the market - customer confidence
- can gain economies of scale reducing average costs
- supernormal profits can be reinvested creating more jobs and new products
193
Disadvantages of oligopoly
- high prices for consumers due to sticky prices
- may nit be incentivised to reduce costs - x-inefficiency
- firms may be so large they suffer from diseconomies of scale
- less choice for consumers
- allocatively and productively inefficient
194
Advantages of a contestable market
- firms can operate with allocative and productive efficiency which means lower prices for consumers
- incentives for firms in the market to operate at lower costs (X-efficiency)
195
Disadvantages of a contestable market
- market is unlikely to have no sunk costs, meaning firms are unlikely to be forced to operate at the most efficient level
- most markets have some consumer loyalty, meaning firms are unable to operate at most efficient level
196
Factors affecting demand for labour
- wages
- demand for the product
- Labour productivity
- Capital productivity
- Price of product
197
Factors affecting wage elasticity of demand
- Proportion of labour costs
- PED of product
- Wether capital and labour can be substituted
- Time - substitute labour for capital in the LR but less likely in SR
198
Factors affecting supply of labour
- wage
- Wages in other industries
- Non-monetary benefits
- Qualifications or skills needed
- Demographics - population structure
199
Factors effecting wage elasticity of supply
- availability of workers
- skills and qualifications
- nature of the job
- labour immobility
- time - SR more inelastic can’t swap jobs as they need skills and qualifications
200
Impact of trade union on labour markets
- Can lead to market failure and the strength of trade union can lead to market failure
- likelihoods of a strong trade union leading to market failure depends upon relative strength of the firm
201
Impact of a monopsonist employer on labour market
a monopsonist employer can choose either the wage paid or the quantity of labour employed
- if profit maximising it will operate so MC=MR
- will operate at wage level and quantity of labour lower than the market
202
Government methods for increasing labour market flexibility and mobility
- education
- vocational education
- job training schemes
- infrastructure
- trade union reform
- technology
- legislation - (zero-hour contracts and redundancy laws)
203
Effects of bilateral monopoly
- pressure of trade union to increase wages is balanced by the pressure of the monopsonist employer to decrease wages
204
Conditions of a monopoly
- a single seller in a market
- barriers to entry - cant compete in a monopoly market
- barriers to exit - difficult to exit the market without making a loss
- price maker - can choose the price in the market and is likely to choose a price higher than a competitive market
- no close substitutes - nature means that it is difficult for customers to substitute the product for anything else
- supernormal profit - in both short run and long run
205
Conditions for perfect competition
- many sellers/buyers - no dominance or control
- no barriers to entry - can enter easily and compete
- no barriers to exit - exit when it becomes unprofitable
- price takers - must take market price because firms cant affect the market price
- homogeneous products - no actual or perceived difference between different products on the market
- perfect knowledge - all firms have all information of the actions and prices of the other firms in the market
206
Conditions for monopolistic competition
- many firms
- differentiated products - not homogeneous
- few barriers to entry and exit
- no dominant firm - no firm has power in the market
- downward sloping demand curve - some control over price
207
Examples of product differentiation
- branding - customers identify with brand
- after-sales service - for higher priced products firms could offer credit of warranty to ensure customers shop withy them as opposed to competitors
- extra features - added extras too make it seem different to competitors
- performance or reliability - advertise its better than competitors
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Characteristics of an oligopoly
- A few dominant sellers
- interdependence - A few dominant sellers they must base its decision-making on what other sellers are doing
- barriers to entry - must have some to step new firms from being able to compete with one dominant firms
- differentiated products i.e. Branding
- non- price competition - competing on branding and advertising
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Characteristics of a contestable market
- no barriers to entry or exit
- no sunk costs that may prevent firms from entering or exiting
- all firms can access new technology
- little to no consumer loyalty
- can exit and enter quickly
