Theme 3 Flashcards

Question

Go to page 275 and test on random squares of the table on the bottom

Answer 1

Being a price taker-u must sell at the prevailing market price or face no sales, as your price is too high, or no profit, as your price is too low. Prevalent in perfect competition

Answer 2

Monopoly-Microsoft for PC OS or Google for web browsers Monopolistic competition-Hairdressers, local restaurants Oligopoly-Supermarkets, electric cars, Phones Perfect compeition-Forex markets.

Answer 3

Profit maximisation is the goal There are many participants (buyers and sellers) but none large enough to influence price Homogenous products No barriers to entry or exit Perfect information No externalities

Answer 4

In the short run, if a firm is making supernormal profits, other firms, due to the perfect information and low barriers to entry, will enter the market to undercut, resulting in it reaching normal profits for all firsm, as they are price takers

Answer 5

Productive-Yes as MES is operated on in the long run, but not necessarily in the short run Allocative-Yes, as price will equal marginal cost Dynamic-No, as firms do not have the opportunity to reinvest surplus profits into future potential, as they do not make any X-Efficiency-Yes in the short run, but due to dynamic efficiency and technological innovations, possibly not in the long run

Answer 6

One seller No substitutes Barriers to entry

Answer 7

A market in which it only makes sense for there to be one provider e.g. trains or water(no parallel rail lines or water pipes for competition)

Answer 8

Productive-Unlikely as it will profit maximise, so will only produce at the minimum AC if MR passes through that point, which is unlikely. However, econmoies of scale might mean that even not producing at the lowest cost, it is still lower than in a perfect market Allocative-No, as they will profit maximise, so produce at Mr=Mc, so price will be above marginal cost. However, price discrimination can make the product available to more Dyanmic-Yes-large profits can be reinvested into rnd. However, depends on rent seeking and unproductive behaviour e.g. dividends

Answer 9

With a monopoly: Less output, higher prices, results in a deadweight loss

Answer 10

Also called first degree price discrimination, is where a firm charges each individual the exact upper limit of what they would pay, fully eroding consumer surplus. Examples are art commisions where the price is negotiated prior by buyer and seller

Answer 11

Also called partial discrimination, It is where different groups of consumers pay different amounts relative to their price elasticity of demand for the product. E.g. discounts for pensioners

Answer 12

Firms must have market power Firm needs information about consumers and their elasticities(or identifiable differences between groups) There needs to be a limited ability to resell the product e.g. plane tickets for a specific person

Answer 13

Firms have no market power

Answer 14

Edward Chamberlin in the 1930s

Answer 15

Product differentiation Few barriers to entry Many firms in the market

Answer 16

Short term supernormal profits happen because of the downward sloping demand curve due to product differentiation. However, due to no barriers to entry, in the long term competition will push profits down by providing substitute goods, making demand more elastic.

Answer 17

Firms producing normal profit (just covering the opportunity cost of opening a business) at AC=AR

Answer 18

May not allow economies of scale to be taken full advantage of However, consumers may prefer choice so may yield more utility.

Answer 19

That if the firm raises price, it will lose customers as competing firms will continue selling at a lower price, but if it lowers prices, so will other firms, offsetting any benefit.

Answer 20

Fine firms up to 10% of their turnover each year of the cartels operation

Answer 21

Organisation of Petroleum Exporting Countries (OPEC) who control the supply and price of oil

Answer 22

Ability of firms to monitor each other, Small number of firms, similar products, too much variation can limit abilities to collude, the level of sttability within a market

Answer 23

Where firms stop competing on price without formal agreements but as a mutually benefical action. e.g. price leadership or barometric price leadership where firms will test the waters with higher prices and see who follows(contrary tto kinked demand curve)

Answer 24

For the firm: Lower costs, due to its market power and ability to demand lower prices for raw goods, However, this can put suppliers out of business For Consumers, they may get lower prices, however it depends how much of the benefit is passed on as savings rather than taken as profit. Also depends on if quality is compromised by suppliers to meet what the monopsonist is demanding Employees;lower cost of raw materials may mean greater job security or higher wages, but depends on profit margins.

Answer 25

A manner of setting prices in which they calculate the average cost then add a slight value more for profit. 37% of companies in the uk used this method to set prices

Answer 26

Named after the court case, it is that a pricing strategy is predatory if it is set below average variable costs, as the only reason it would have to stay in business would be to gain market share

Answer 27

A less extreme example of predatory pricing, it is where a an incumbent firm has a form of cost advantage, so can charge a price gaining them normal profits and forcing the new firms under the shutdown point.

Answer 28

Where a firm can enter a market with no barriers and reap short term supernormal profits and then exit