Perfect competition, imperfectly competitive markets and monopoly Flashcards

1
Q

What are entry barriers

A

obstacles that make it difficult for a new firm to enter a market

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2
Q

what are exit barriers

A

obstacles that make it difficult for an established firm to leave a market

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3
Q

What is product differentiation

A

distinguishing a product or a service from similar ones in the market

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4
Q

What is the divorce of ownership from control

A

the owners and those who control the firm (managers) are different groups with different objectives

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5
Q

what is satisficing

A

achieving a satisfactory outcome rather than the best possible outcome

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6
Q

When is profit maximised

A

at the level of output which MR=MC

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7
Q

What is perfect competition

A

occurs when there are many sellers, easy to enter and exit firms, products are identical and sellers are price takes

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8
Q

what is productive efficiency

A

a firm using all its resources in the most efficient way possible, producing the maximum output with the minimum input

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9
Q

what is allocative efficiency

A

producing the right amount of goods or services that people want, and distributing them in a way that benefits everyone

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10
Q

what is the problem with perfect competition

A

no real world market meets all the conditions

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11
Q

what is a monopoly

A

one firm only in a market

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12
Q

what is monopoly power (also known as market power)

A

when one company is big and dominant that it can set high prices because there’s no competition to challenge it

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13
Q

what are two advantages of monopoly power

A

economies of scale- produce goods more cheaply

dynamic efficiency - use profits to fund research and development

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14
Q

Two disadvantages of monopoly power

A

productive inefficiency- may not produce at lowest cost so there is wasted resources

allocative inefficiency- misallocation of resources and reducing overall welfare

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15
Q

What is monopolistic competition

A

market where many companies sell similar not identical products. they have some control over prices

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16
Q

what is a disadvantage of monopolistic competition

A

leads to allocative inefficiency and productive inefficiency

17
Q

what is an advantage of monopolistic compeititon

A

consumer benefits as it improve overall welfare offering more product variety

18
Q

What is oligopoly

A

market structure where they are a few large companies who control most of the industry

19
Q

what is concentration ratio

A

measure the market share of the biggest firms in the market

20
Q

what is market conduct

A

the pricing and marketing policies pursued by firms.

21
Q

what is a cartel

A

an agreement by firms usually to fix prices

22
Q

advantages of oligoply

A

-economies of scale
-easier comparison
-innovation

23
Q

disadvantages of oligopoly

A

-higher prices
-cartels
-barriers to entry

24
Q

what is price leadership

A

the setting of prices in a market, usually by a dominant firm

25
what is price agreement
an agreement between a firm, similar firms, suppliers or customers regarding the prices
26
what is price war
occurs when rival firms continuously lower prices to undercut each other
27
what is price discrimination
charging different prices to difference customers for the same product or service
28
what is a contestable market
a market where the potential exists for new firms to enter the market
29
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
30
what is static efficiency
efficiency at a particular point in time
31
what is consumer surplus
the difference between the maximum price a consumer is prepared to pay and the actual price they have to pay
32
what is producer surplus
the difference between the minimum price a firm is prepared to charge for a good and the actual price charged
33
what is deadweight loss
the loss of economic welfare when the maximum attainable level of total welfare fails to be achieved