Unit 5 - Perfect Competition, Imperfectly Competitve Markets And Monopoly Flashcards
Market structure
The organisational and other characteristics of a market
Entry barriers
Obstacles that make it difficult for a new firm to enter a market.
Exit barriers
Obstacle that make it difficult for an established firm to leave a market.
Product differentiation
The marketing of generally similar products with minor variations or the marketing of a range of different products.
Divorce of ownership form control
The owners and those who control the firm (managers) are different groups with different objectives.
Satisficing
Achieving a satisfactory outcome rather than the best possible outcome.
Productive efficiency
For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised.
Allocative efficiency
Occurs when it is impossible to improve overall economic welfare by reallocating resources between markets. In the whole economy, price must equal marginal cost ( P = MC ) in every market.
Allocative inefficiency
Occurs when P>MC, in which case too little of a good is produced and consumed, and when P<MC, in which case too much of a good produced and consumed.
Monopoly
One firm only in a market.
Market conduct
The pricing and marketing policies pursued by firms. This is also known as market behaviour but is not to be confused with market performance, which refers to the end results of these policies.
Cartel
A collusive agreement by firms l, usually to fix prices. Sometimes there is also and agreement to restrict output and to deter the entry of new firms.
Price leadership
The setting of prices in a market, usually by a dominant firm, which is then followed by other firms in the same market.
Price agreement
And agreement between a firm, similar firms, suppliers or customers regarding the pricing of a good or service.
Price war
Occurs when rival firms continuously lower prices to undercut each other.
Price discrimination
Charging different prices to different customers for the same product or service, with the prices based on different willingness to pay.
Contestable market
A market in which the potential exists for new firms to enter the market. A perfectly contestable market has no entry or exit barriers and no sunk costs, and Both incumbent firms and new entrants have access to the same level of technology.
Hit-and-run competition
Occurs when a new entrant can ‘hit’ the market, make profits and then ‘run’, given that there are no or low barriers to exit.
Static efficiency
Efficiency ( e.g. productive and allocative efficiency) at a particular point in time.
Consumer surplus
A measure of the economic welfare enjoyed by consumers: surplus utility revived over and above the price paid for a good.
Producer surplus
A measure of the economic welfare enjoyed by firms or producers: the difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept.
Deadweight loss
The loss of economic welfare when the maximum attainable level of total welfare fails to be achieved.
