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42 Cards in this Set
- Front
- Back
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Cons of monopoly |
Allocative inefficiency Productive inefficiency X inefficiency Inequality (low income earners suffer w monopolies in necessities) |
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Pros of monopoly |
Dynamic efficiency Greater EoS Natural monopolies Cross subsidisation |
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Eval of monopoly |
DE = no incentive to invest EoS = depends on size of firm Objective = is firm PM? SM? RM? Price discrimination = can be good Competition = Tesco Natural monopolies = not bad Type of good = necessities (monopoly bad) or luxury (monopoly good) |
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Pros of competitive market |
Allocative efficiency Productice efficiency X-efficiency Jobs created |
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Cons of competitive market |
No DE (no LR SNP) Lack of EoS (smaller firms) Cost cutting (DE, PE) in socially acceptable areas? Creative destruction |
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Evaluation for Competitive markets |
DE can be possible (D>AC in LR) Level of EoS Natural monopolies > competition Does society want static or dynamic efficiency? |
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Anchoring |
Value imprinted on our minds |
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Social Norms |
Society dictates illogical things to do |
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Availability bias |
How easy to conjure up examples |
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Framing |
How are we influenced by the way information is presented |
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Loss aversion |
We dont like to lose more than we want to gain |
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Endowment effect |
Attaching too much value to a possession |
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Herd behaviour |
Making decisions on what other people are doing |
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Choice architecture |
Changing room design to control actions |
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Altruism |
Traditional economics says charity is stupid but behavioural says w an emotional and moral obligation, its still logical |
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Govt behavioural policies |
Framing (traffic light colours on food) Nudges (supermarket choice architecture) Default choice (organ donation) Restricted choice (public smoking ban) Mandated choice (recycling bins) |
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Critique of Govt using behavioural policies |
Too paternalistic? Unpredictable and costly (no guarantee people will act in a certain way, leads to govt failure) Too weak policies? (Tax w smoking is ineffective due to elasticity, ban is effective) |
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Judgement on Govt use of behavioural policies |
Costs v benefits (govt failure?)
Whats the root cause of problem? (People apathetic to costs or j lack info)
Integrated policy? (Tax AND behavioral)
Are shove policies j more effective? |
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Assumptions of oligopoly |
High concentration ratio Differentiated goods High BtE and E Interdependence Non-price competition Profit max isn't sole objective |
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Conclusions of kinked demand curve |
Price competition (increase market share) Non-price competition (due to rigidity) Collusion likely |
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Conclusions of game theory |
Price rigidity (due to nash equilibrium) Temption to collude (nash equilibrium isnt mutually most beneficial) Incentive to cheat (gain to higher profits due to undercutting on price) |
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Factors promoting competitive oligopoly |
Less concentrated New market entry possible (lowers incentive for SNP) One firm w cost advantage (hard to agree on price) Homogeneous goods (less price making power) Saturated market (higher incentive to cheat on agreemtn) |
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Factors promoting collusive oligopoly |
VV of factors promoting competitive oligopoly Poor competition policy (easier to get away w collusiok Consumer loyalty (consumers want to keep you) Consumer inertia (consumer don't want to switch) (weflip, U switch) |
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Negative externality |
Social is left of Private (DWL points to social optimum) |
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Positive externality |
Social is right of private (DWL points to social optimum) |
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Theory of firms diagram conditions |
Prof max: MR=MC (C SR) (M SR LR) Rev max: MR=0 (new firms) Sales max: AC=AR (increases market share) Productice efficiency: AC lowest point Allocative efficiency: MC=AR (C LR) Marginal profits: MR-MC Total profit: TR - TC Shut down price: P=min AC |
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Joint demand |
2 things demanded together |
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Competitive demand |
Substitutes |
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Composite demand |
Something demanded for multiple uses |
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Derived demand |
Demanded for what it produces (labour) |
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Joint supply |
Gives you 2 things (cows give beef and milk) |
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Returns to scale |
Relationship between input and output |
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EoS |
Relationship between increased output and costs |
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Objective of competition policy |
Promote competition to get more efficiency |
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Conditions for price discrimination |
Imperfect competition Prevention of re-sale Differing PEDs |
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Assumptions of perfect competition |
Many buyers and sellers Homogeneous goods No barriers to entry or exit Perfect information Firms are profit maximizing |
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Assumptions of monopolistic competition |
Many buyers and sellers Slightly differentiated goods Low barriers to entrycand exit Good information Non-price competition Firms are profit maximizing |
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Assumptions of monopoly |
One seller dominating market Differentiated products High barriers to entry and exit Imperfect information Profit maximization |
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Micro plans (most) |
Consumers Firms Workers |
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Mirco plans (some) |
Productive efficiency Allocative efficiency Dynamic efficiency |
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Mirco plans (govt policies) |
Pick 3 policies |
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Evaluation points |
Prioritisation: RWE or theory to give relative importance SR v LR Question assumptions Consider impacts on different stakeholders |
