The dynamics of competition and competitive market processes Flashcards
what is a competitive market
where no single firms has a dominant position and where the consumer has plenty of choice when buying goods or services. There are few barriers to the entry of new firms
What are the pros of a competitive market
-Allocative efficiency
-productively efficient
-X-efficiency
-high quantity
what are the cons of a competitive market
-Lack of dynamic efficiency
-lack of economies of scale
-cost cutting in dangerous areas
-creative destruction
what does allocative efficiency entail
-Firms charge a price which is equal to marginal cost
-consumers pay what it cost to produce
Means
-low prices for consumers
-higher consumer surplus
-Resources will be following consumers demand
-higher quality, higher quality, better choice in the market
what does productively efficient entail
-Minimising their average cost, exploiting all there economies of scale, therefore passing on lower cost to consumers thus lower prices
What does x-efficiently entail
minimising any waste producing on their average cost curve
What does quantity being high entail
-jobs will be created
-increased employment
-increase standard of living
What does lack of dynamic efficiency entail
-At the end of a competitive market analysis you are often left with normal profit, no profit for reinvestment back into the company
therefore no progress over time with technology, innovation and capital development
- and losses out on lower prices over time
what does a lack of economies of scale entail
-A profit maximising monopoly can actually charge lower and produce more then an allocative efficient competitive firm who doesn’t have the same economies of scale potential
What does cost cutting in dangerous areas entail
-cutting health and safety benefits, environmental standards, wage and etc
What is cutting in the wrong areas go against
antisocietiral interests
what is creative destruction mean
This refers to the process of how capitalism leads to a constantly changing structure of the economy. Old industries and firms, which are no longer profitable, close down enabling the resources (capital and labour) to move into more productive processes.
-Creative destruction means that the company closures and job losses are good for the long-term well-being of the economy
What did Joseph schumpeter’s believe about creative destruction
Schumpeter saw creative destruction as a necessary and natural way to enable new markets and new growth
