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Economics > Theme 3 AO1 > Flashcards

Theme 3 AO1 Flashcards

1
Q

In perfect competition, are firms profit maximisers?

A

Yes

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2
Q

In perfect competition, are products the same?

A

Yes, all products are homogenous.

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3
Q

In perfect competition, is it easy to enter/exit the market?

A

Yes

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4
Q

In perfect competition, how many participants are involved?

A

There is a high amount of buyers and sellers.

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5
Q

In perfect competition, are there any information gaps?

A

No, perfect information exists for both buyers and sellers.

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6
Q

In perfect competition, do firms dictate their own prices?

A

No, firms are price takers and charge the price that is set by the market.

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7
Q

Are monopolies profit maximisers?

A

Yes.

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8
Q

Do monopolies set their own prices?

A

Yes, to some extent.

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9
Q

What type of profit do monopolies make?

A

Supernormal profit.

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10
Q

About markets with monopolies, are there high barriers to entry/exit?

A

Yes as the monopoly dominates the market.

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11
Q

About markets with monopolies, how many participants are there?

A

There are a small number of large firms but there may be a larger number of small firms already existing in the market.

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12
Q

In monopolistic competition, are there a high number of participants?

A

Yes, there are many producers and many consumers.

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13
Q

In monopolistic competition, are all products similar?

A

No, all products are highly differentiated.

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14
Q

In monopolistic competition, do firms dictate their own prices?

A

Firms have some control over their prices.

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15
Q

In monopolistic competition, are there high barriers to entry/exit?

A

No, barriers to entry/exit are low.

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16
Q

In monopolistic competition, are firms profit maximisers?

A

Yes

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17
Q

In monopolistic competition, are firms productively efficient?

A

Firms are not productively efficient as the price is always higher than MC

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18
Q

In monopolistic competition, are firms allocatively efficient?

A

No as price is always higher than MC

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19
Q

Are monopolies productively efficient?

A

It is unlikely as monopolies will only produce at the bottom of AC if MR passes through it.

20
Q

Are monopolies allocatively efficient?

A

Given that MR is lower than AR, price is always above MC, so no.

21
Q

In perfect competition, are firms allocatively efficient in SR?

A

Yes as MC crosses AR/MR

22
Q

In perfect competition, are firms allocatively efficient in LR?

A

Yes as MC crosses AR/MR

23
Q

In perfect competition, are firms productively efficient in SR?

A

No as AR/MR is higher than AC

24
Q

In perfect competition, are firms productively efficient in LR

A

Yes as AR/MR passes through the bottom of AC

25
Q

What is collusion?

A

Collusion is an anti-competitive agreement between rivalling firms that attempts to disrupt the market’s equilibrium. This is illegal.

26
Q

What is a cartel

A

A group of firms that collude with each other. The only legal example is OPEC.

27
Q

What is overt collusion?

A

This is when cartels will openly arrange to collude with each other.

28
Q

Name some examples of overt collusion?

A

Price fixing, market sharing and bid-rigging.

29
Q

In regards to oligopolies, who dominates the market?

A

The market is dominated by a few large firms and possibly many small firms.

30
Q

In markets with oligopolies, are there high barriers to entry?

A

Yes, there are high barriers to entry as large firms utilise EOS.

31
Q

In markets with oligopolies, are there similar products offered?

A

No, there is high product differentiation and firms engage in non-price competition.

32
Q

What is the predatory pricing strategy?

A

Predatory pricing is firms temporarily set their prices below their average variable costs to eliminate competition. This is illegal.

33
Q

What is the limit pricing strategy?

A

Large firms will set low prices to eliminate small firms from the market. This is illegal but hard to prove.

34
Q

In markets with oligopolies, is there any risk of firms colluding?

A

Yes, there is a high risk of the large firms colluding with each other.

35
Q

What does high contestability mean?

A

It means that it easier to enter a market due to low barriers and less sunk costs.

36
Q

What does low contestability mean

A

It is difficult for firms to enter the market due to high barriers and high sunk costs.

37
Q

What is first degree price discrimination?

A

It is when firms charge the maximum price that consumers are willing to pay (no consumer surplus)

38
Q

What is secondary price discrimination?

A

Charging different prices to customers depending on how much they buy.

39
Q

What is third degree price discrimination?

A

Charging different prices to different segments of the market for the same good or service.

40
Q

How are consumers charged based on their PED for the good or service in third degree price discrimination?

A

The consumers with an inelastic PED are charged a higher price. Consumers with an elastic PED are charged a lower price.

41
Q

What is a conglomerate merger?

A

A merger between two firms that are not in the same industry.

42
Q

What is a vertical merger?

A

A merger between two firms in the same industry but at different points in the production stages.

43
Q

What is a horizontal merger?

A

A merger between two businesses in the same industry and stage of production.

44
Q

What form of regulation is there for mergers and takeovers?

A

The Competition Markets Authority (CMA) allows and disallows mergers to be completed.

45
Q

What is the main factor considered by the CMA if a merger is looking to be made?

A

The affect upon the consumer.

Economics (15 decks)

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