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13 Cards in this Set
- Front
- Back
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define Perfect Competition |
Infinite buyers and sellers all price takers, no barriers to entry or exit, Perfect knowledge, all firms profit maximising. Industry controls price, firms take price. |
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define Pure Monopoly |
one firms in the market, high barriers to entry and exit, firms face downward sloping demand curve and aim to maximise profit. |
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Benefits of Monopolies |
Innovation, R&D, Investment, Govt. gains tax revenue, job security, higher salaries, consistency of quality |
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Costs of Monopolies |
Less choice, Higher prices, Lower quality (X-inefficiency), Tax avoidance, Capital investment replaces employees, abuse monopsony power, anti competitive behavior |
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Define Pure Monopsony |
A sole buyer of resources and supplies |
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Benefits of Monopsonies |
Buying power increases profits, Lower costs passed onto consumers, Investment and R&D, Can overcome monopoly power (e.g supermarkets and big brand names) |
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Costs of Monopsonies |
Suppliers squeezed out of business, limited choice, barrier to entry, unequal gains, firms investigated by CMA |
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define Interdependent |
the actions and gains of one firms are dependent on the actions of another |
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5 pricing strategies used in oligopoly |
Price wars (constantly slashing prices), Predatory pricing, Limit pricing, Price leadership (one firms sets price, others follow), Non price competition |
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Main characteristics of a Contestable Market |
Low barriers to entry, Low sunk costs, low concentration ratio, low barriers to exit, low market power |
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Main characteristics of Monopolistic Competition |
Product differentiation, Freedom of entry, Low concentration |
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Explain the long run market for Monopolistic competition |
New firms enter the market due to freedom of entry, so the demand for each firm decreases slightly, this continues to occur until normal profits are being made at which point the market is not appealing enough for new firms to enter, so has reached LR equilibrium |
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Problem with Monopolistic Competition |
In the long run, no firms will be operating at either productive or allocative efficiency so efficiency in these markets will be low |
