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Economics > Paper 2 Revision > Flashcards

Paper 2 Revision Flashcards

1
Q

What are the assumptions of a perfect market?

A
  • There are many producers in the market, producers are price takers
  • Producers sell homogeneous goods
  • Consumers are fully aware of prices charged by different producers
  • Producers enjoy complete freedom of entry and exit from the market
  • There are many consumers powerful enough to affect the market price of a good
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2
Q

What impurities are present in perfect markets?

A
  • The number of producers is not numerous
  • Goods sold by all producers are not completely identical
  • There are costs involved in moving into and out of markets
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3
Q

When do imperfect markets prevail?

A

When there is imperfect competition between producers

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4
Q

What are the 3 kinds of imperfect market structures?

A
  • Monopolies
  • Monopolistic Competition
  • Oligopolies
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5
Q

What distinguishes an imperfect market from a perfect one?

A

Imperfect markets do not follow the supply and demand rules of the market when they decide on the prices to charge and the quantities to produce

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6
Q

What are imperfect markets referred to as?

A

Price Makers

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7
Q

What are the properties of a monopoly?

A
  • Least competitive
  • Single seller in the market
  • No substitutes available
  • Entry by other producers is completely blocked
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8
Q

What are barriers to entry of the monopoly structure?

A
  • Natural Barriers
  • Cost Barriers
  • Legal Barriers
  • International distances
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9
Q

What are natural barriers?

A

The uneven distribution of natural resources

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10
Q

What are cost barriers?

A

Economies of scale might be so important in some industries that in order to compete, a company must be large

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11
Q

What are legal barriers?

A

When some monopolists are protected by law for the interest of the public

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12
Q

What are international distances?

A

Trade barriers have the effect of protecting monopolies

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13
Q

What is a monopolistic competition?

A

A market composed of a number of producers whose goods are not homogeneous

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14
Q

When will a monopolistically competitive market exist?

A
  • When there are many competitors
  • Entry into the market is not difficult but restricted
  • Product differentiation prevails
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15
Q

What is an oligopoly?

A

A market composed of only a small number of dominant producers whose pricing decisions are interdependant

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16
Q

What are the characteristics of an oligopoly?

A 
Kinds of goods
-Identical or differentiated 
Barriers
-Considerable barriers 
Pricing
-Interdependent pricing decisions 
Collusion
-Secret price fixing to reduce competition
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17
Q

What assumptions can be made about oligopolists?

A
  • There will be strong incentives to collude
  • Price competition will generally be avoided
  • Agreements can easily be broken
  • Oligopolistic businesses will tend to maintain and strengthen barriers to entry in their industry
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18
Q

What are the objectives of businesses?

A

To produce goods and services

To make a profit

19
Q

What is the short run?

A

The period during which one or more resources cannot be changed, either increased or decreased

20
Q

What is a fixed cost?

A

Any cost that does not vary with the level of output

21
Q

What is a variable cost?

A

Any cost that changes with the level of output

22
Q

What are total costs?

A

The sum of fixed costs and variable costs at each output level

23
Q

What is average costs?

A

Total costs divided by output

24
Q

How does output affect average costs?

A

When output is small, average costs will be high

When output is high, average costs will fall

25
Q

What is a marginal cost?

A

What happens to total cost when output is varied by some small output

26
Q

What is a cost structure?

A

The way various measures of cost vary with production level

27
Q

What is marginal cost?

A

The additional cost of producing an additional unit or the change in total cost

28
Q

What is the long run?

A

The period of time during which all can be changed - either increased or decreased

29
Q

When can economies of scale occur?

A
  • when expanded operation permits greater specialisation of resources
  • Technologically advanced equipment can be used
  • Expansion may permit improvements in organisation
30
Q

How can the average cost of production be reduced?

A

By spreading the higher cost of additional plant and equipment over a large output level

31
Q

What is revenue?

A

The term used to describe the flows of money received by businesses

32
Q

What is utility?

A

The satisfaction gained in consuming an economic good

33
Q

What is total utility?

A

All the satisfaction gained from the consumption of a given quantity of economic goods

34
Q

What is average utility?

A

The average satisfaction per unit gained from the consumption of goods

35
Q

What is Marginal utility?

A

The satisfaction gained from the last economic good consumed

36
Q

What does the law of diminishing marginal utility state?

A

That marginal utility declines as the number of goods consumed increases

37
Q

What is price elasticity of demand?

A

The relationship between the proportionate change in price and the proportionate change in quantity demanded

38
Q

How is price elasticity of demand calculated?

A

by making use of the percentage change in price and quantity and not absolute changes

39
Q

When can demand be elastic?

A

For goods and services that are

  • Close substitutes
  • Luxuries that can be postponed
40
Q

When can demand be inelastic?

A

When a given change in price causes a smaller percentage change in demand

41
Q

What are the 2 kinds of price elasticity?

A

Unit price elasticity
Perfect inelasticity
Perfect elasticity

42
Q

What is unit price elasticity?

A

When a percentage change in price results in a equal percentage change in demand

43
Q

What is perfect inelasticity?

A

It occurs when a change in price causes no change in the quantity demanded

44
Q

What is perfect elasticity?

A

When demand is perfectly elastic at a certain price level, demand for the good will be infinite

Economics (7 decks)

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