Validation Flashcards
What is Market Effiency
Market efficiency also occurs when resources are allocated to maximised society’s benefits and is measured by the total surplus.
What does demand curve show?
A demand curve is a willingness to pay curve. It reflects the maximum price that a consumer will pay for a good. The demand curve also reflects the marginal benefits a consumer gets from a good. It therefore is also a marginal benefit curve.
What does supply curve show?
The supply curve reflects the minimum price that producers are willing to sell their products.
It shows each price and quantity that the supplier or producers is willing to accept
What is producer surplus and give an example?
Producer surplus is the difference between what a producer is willing to receive and what they actually receive.
How to find total surplus
TS = CS + PS.
What is the most market effiecient?
Economic efficiency occurs when total surplus is at a maximum. Total surplus is only maximised at equilibrium
4 main types of market failure?
Market Power
Externalities
Public Goods
Common Goods
MEPC
What is Market failure
Market failure occurs when resources are not allocated efficiently.
Compettive Market characterisitcs?
large number of firms, little barriers to entry and exit, and little product differentiation.
Example of barrier to entry?
Technolgoical adavance, patent, controlling of scare resource
Market Power exists when+example and explain
There are a small number of firms
Firms use product differentiation
There are barriers to entry to restrict competition. An example is Synergy (power) or Australia Post
What happens when there is market power?
When there is market power, there is an incentive for firms to collude. This reduces competition, increases prices and reduces output. This will decrease economic welfare for society.
What is Market Power
when a company is able to significantly manipulate or control the prices of products or services by exercising control over supply and demand.
How is Market Power stoopped?+most common form to stop regulation
Governments try to introduce policies to reduce market power and reduce imperfect markets. The aim is to increase competition and lower prices for consumers. They use price regulation to stop market power.
Does subsidy go to total surplus?
The subsidy cost is removed from our total surplus.
When do externalities occur?
An externality occurs when the production or consumption of a good or service creates external costs and/or external benefits. These side effects are known as externalities.
Examples of externalities
People smoking creating health issues for the community
Loud music from concerts disturbing residential areas
Toxic chemicals from a factory into a river
What is private cost
– These refer to the cost of the user of the product/service
What is social cost?
– These refer to the cost to society as a whole due to the product or service.
What is postive externalties?
a benefit received or transferred to a party as an indirect effect of the transactions of another party.
When a negative externality occurs, the social cost (cost to society) is higher than the private costs.
What is negative externalities?
When a negative externality occurs, the social cost (cost to society) is higher than the private costs.
Effects of tax on market?
Decrease CS AND PS and adds DWL
Effects of subsidy on market
CS AND PS increases as well as DWL reduction
What are price ceilings?
Price ceilings prevent a price from rising above a certain level.
When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.
Effects of pric ceiling on market
The reduction in consumer surplus occurs because consumers cannot purchase the quantity they desire at the lower price.
Producer surplus decreases as producers are forced to sell their goods at a price below what they would receive in a free market.
Price ceilings lead to an inefficient allocation of resources.
What is price floor
Price floors prevent a price from falling below a certain level.
When a price floor is set above the equilibrium price, quantity supplied will exceed quantity demanded, and excess supply or surpluses will result.
Characteristics of imperfect market?
There are a limited number of firms or sellers in the market, often with significant market power.
Sellers have some degree of control over the price of their product.
There are barriers that prevent new firms from entering the market easily.
Demand is often relatively elastic due to the availability of substitutes and the presence of product differentiation.
Causes of Market Power
High entry barriers prevent new firms from entering the market.
Firms with superior technology can produce goods at lower costs or offer better-quality products.
Monopolies
Collusion between big companies
Classification of goods
Goods are classified based on rivalry (whether one person’s consumption affects others) and excludability (ability to exclude non-payers). Rivalrous goods include food and cars, while non-rivalrous goods like public parks. Excludable goods can be private (clothing) or club goods (satellite TV), while non-excludable goods include public goods like national defense.
What are public goods and some examples?
hopspital park
What market power does
When there is market power, there is an incentive for firms to collude. This reduces competition, increases prices and reduces output. This will decrease economic welfare for society.
CS +PS = TS
What is an Externality?
An externality occurs when the production or consumption of a good or service creates external costs and/or external benefits. These side effects are known as externalities.
What is benefit for positive eternality?
When positive externalities occur, the social benefit is usually larger than the private benefit.
Private cost?
Private costs – These refer to the cost of the user of the product/service
Social Cost?
These refer to the cost to society as a whole due to the product or service. When a negative externality occurs, the social cost (cost to society) is higher than the private costs.
