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economics > YEAR 13 - THEME 3 > Flashcards

YEAR 13 - THEME 3 Flashcards

1
Q

Pure monopoly

A

where only one producer exists in the industry

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2
Q

monopoly power

A

when firms influence the market in the same way through their behaviour
- this is determined by there degree of concentration in the industry

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3
Q

characteristics of a monopoly

A
  • one single seller
  • high barriers to entry
    lots of control over price
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4
Q

advantages of monopolies

A
  • economies of scale
  • if grown organically they are efficient
  • can reinvest supernormal profits back into products
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5
Q

disadvantages of monopolies

A
  • higher prices and lower output
  • allocative efficiency -> price is greater than MC
  • supernormal profit -> unequal distribution of income
  • diseconomies of scale
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6
Q

natural monopolies

A

high barriers to entry and high start up costs that prevent any rivals from competing

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7
Q

price discrimination

A

charging a different price to different groups for the same good
–> eg ~ student discounts

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8
Q

first degree price discrimination

A
  • charging consumers the maximum price that they are willing to pay
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9
Q

second degree price discrimination

A
  • charging different prices depending on the quantity consumed
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10
Q

third degree price discrimination

A
  • charging different prices to different groups for the same good
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11
Q

conditions for price discrimination

A
  • firms must operate in imperfect competition
  • firms must be able to separate markets and prevent resale -> stop adults use childs tickets
  • different consumer groups have elasticities of demand -> students with lower income more price elastic
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12
Q

advantages of price discrimination

A
  • firms will be able to increase revenue
  • increased revenue can be used for research and development which benefit consumers
  • some consumers will benefit from lower fares
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13
Q

disadvantages of price discrimination

A
  • some consumers will end up paying higher prices
  • decline in consumer surplus
  • those who pay higher prices may be the poorest
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14
Q

oligopoly

A

when there are a large number of firms in the industry but the industry is dominated by a small number of very large producers

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15
Q

concentration ratio

A

the proportion of total market share held by 3,4,5 firms

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16
Q

features of an oligopoly

A
  • price = relatively stable
  • potential for collusion
  • goods are homogeneous
  • high barriers to entry
  • non price competition
  • game theory can be used
  • brand loyalty
17
Q

internal economies of scale

A
  • purchasing -discount on bulk
  • marketing - promote brand name
  • financial - low interest loans
    -technical - best machinery
  • managerial - best staff/specialists
  • risk bearing - trial and error
18
Q

external economies of scale

A
  • better unis
  • better infrastructure
  • communication networks
  • highly skilled population
19
Q

what is limit pricing

A

charge below the average cist of your rivals

20
Q

what is predatory pricing

A

charging a price to force new rivals out [ illegal ]

21
Q

what is revenue maximisation

A

pricing in order to make considerable revenue

22
Q

what is profit maximisation

A

pricing to satisfy the shareholders by making as much profit as possible

23
Q

what is normal pricing

A

pricing to cover your ATC / costs

24
Q

what is price war

A

constantly under cutting your equally powerful rivalha

25
Q

what is sales volume pricing

A

charging a price where AR=AC

26
Q

collusion

A

when two or more firms ‘agree’ to manipulate the market for thier own self intrest

27
Q

types of collusion

A
  • formal collusion
  • tacit collusion
  • price leadership
28
Q

what is formal collusion?

A
  • when firms make formal agreement to stick to higher prices
29
Q

what is tacit collusion?

A

where firms make informal agreements or collude without actually speaking to their rivals –> no real proof

30
Q

what is price leadership?

A

unofficially following rhe prices set by a market leader

31
Q
A

economics (4 decks)

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