1001537
Description
Flashcards by gustavgroot, updated more than 1 year ago
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Created by gustavgroot
almost 10 years ago
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| Question | Answer |
| Perfect Competition | Assumptions: - Large number of firms (potentially infinite) - No entry and exit barriers - Homogeneous (standardised) products - Perfect information -Producers all use similar technology Important to know that Perfect Competition is only theoretical. The only thing that comes close is an open market. Farmer Markets etc... |
| Monopolistic Competition | Assumptions: - Many small producers - No (or few) entry barriers - Differentiated products - Imperfect information Implications: - Each firm is so small that its actions do not have any noticeable effects. - Small degree of price control Examples: - Restaurants - Hairdressers - Hot dog stands |
| Monopoly | Assumptions: - One seller/dominant firm (usually 80% or more of market share) - No close substitutes - Significant barriers Examples: - Standard Oil (Rockefeller) - U.S Steel (Carnegie) - Microsoft (Gates) |
| Oligopoly | Assumptions: - A few large firms - Barriers to entry - Standardised or differentiated products - Interdependence Examples: - Soft drink companies Types: - Formal (Collusive) ~ Come together to make decisions. - Tactic/Informal (Collusive) ~ Stackelberg leadership; One firm establishes price leadership. - Non-Collusive ~ Firms have to consider reactions of other firms; To theories: · Cournot-Nash - Firms compete on output ·Bertrand - Firms compete on price |
| Maximum Price | - A maximum price is always set BELOW the market clearing price (Pe), which creates excess demand. - Creates a risk of a black market - The government may try to prevent the producers increasing their production by: · Giving subsidies · If the good is stored, then use some of the stores good |
| Minimum Price | - A minimum price is set ABOVE the market clearing price (Pe), which creates excess supply. - If the minimum price is set on normal goods, the government may: · Temporarily store excess · Dump excess to other countries (not really legal) · Set a quota · Set aside capacity to produce |
| Subsidies | - A payment from the government to producers for each unit produced. Why? · To increase positive externalities; renewable energy · To protect certain industries · To dump excess supply on oversea markets (not exactly legal) · Fix inequality Effects: - Reduces product price - Increases output |
| Indirect Taxes | - Aimed at dealing with market imperfections. They are called indirect because he tax revenue is collected by producers, then forwarded to the government. There are two types: · Specific Tax ~ £2.00 on all cigarettes · Value Added Tax (VAT) ~ Added 25% of sale price Reasons: - To fix negative externalities - Raise tax revenue -Reduce inequality Consequences: - Taxes raise product price - Taxes reduce output |
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