Perfect competition, imperfectly competitive markets and monopoly Flashcards
What are entry barriers
obstacles that make it difficult for a new firm to enter a market
what are exit barriers
obstacles that make it difficult for an established firm to leave a market
What is product differentiation
distinguishing a product or a service from similar ones in the market
What is the divorce of ownership from control
the owners and those who control the firm (managers) are different groups with different objectives
what is satisficing
achieving a satisfactory outcome rather than the best possible outcome
When is profit maximised
at the level of output which MR=MC
What is perfect competition
occurs when there are many sellers, easy to enter and exit firms, products are identical and sellers are price takes
what is productive efficiency
a firm using all its resources in the most efficient way possible, producing the maximum output with the minimum input
what is allocative efficiency
producing the right amount of goods or services that people want, and distributing them in a way that benefits everyone
what is the problem with perfect competition
no real world market meets all the conditions
what is a monopoly
one firm only in a market
what is monopoly power (also known as market power)
when one company is big and dominant that it can set high prices because there’s no competition to challenge it
what are two advantages of monopoly power
economies of scale- produce goods more cheaply
dynamic efficiency - use profits to fund research and development
Two disadvantages of monopoly power
productive inefficiency- may not produce at lowest cost so there is wasted resources
allocative inefficiency- misallocation of resources and reducing overall welfare
What is monopolistic competition
market where many companies sell similar not identical products. they have some control over prices
what is a disadvantage of monopolistic competition
leads to allocative inefficiency and productive inefficiency
what is an advantage of monopolistic compeititon
consumer benefits as it improve overall welfare offering more product variety
What is oligopoly
market structure where they are a few large companies who control most of the industry
what is concentration ratio
measure the market share of the biggest firms in the market
what is market conduct
the pricing and marketing policies pursued by firms.
what is a cartel
an agreement by firms usually to fix prices
advantages of oligoply
-economies of scale
-easier comparison
-innovation
disadvantages of oligopoly
-higher prices
-cartels
-barriers to entry
what is price leadership
the setting of prices in a market, usually by a dominant firm
what is price agreement
an agreement between a firm, similar firms, suppliers or customers regarding the prices
what is price war
occurs when rival firms continuously lower prices to undercut each other
what is price discrimination
charging different prices to difference customers for the same product or service
what is a contestable market
a market where the potential exists for new firms to enter the market
what is hit and run competition
occurs when a new enterant can ‘hit’ the market, make profts and then’run’ given that there are no or low barriers to exit
what is static efficiency
efficiency at a particular point in time
what is consumer surplus
the difference between the maximum price a consumer is prepared to pay and the actual price they have to pay
what is producer surplus
the difference between the minimum price a firm is prepared to charge for a good and the actual price charged
what is deadweight loss
the loss of economic welfare when the maximum attainable level of total welfare fails to be achieved
