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18 Cards in this Set
- Front
- Back
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Determinants of Market models: |
- # of firms in the industry - nature of the product (exactly the same standardized or unique products differentiated) - ease of entry and exit of the market |
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Features of purely or perfectly competitive market: |
- large # of firms (competition) - seller is a price taker - no barriers for entry or exit of market - products are standardized or perfect substitutes |
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"In perfect competition the seller is at the mercy of the market" explain. |
The seller is a price taker & has no control over price. |
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What are the conditions necessary to promote competition in perfect competition? |
- large # of firms (consumer is the dominant force) - seller at the mercy of the market - no barriers for entry/exit of market but allows shift ability of resources in response to consumer demand. |
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Freedom of entry and exit relates to consumer sovereignty |
Consumer decides types & quantities of goods & services w/the economy's limited resources meaning that firms can enter an industry in the long run with no cost disadvantages |
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Discuss his perfect competition preserves allocative efficiency: |
Over allocation: MC>MR (bad) Under allocation: MR>MC (producer can still make a profit) Allocative efficiency: P (MR) = MC |
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Pure Monopoly definition & characteristics: |
Exists when a single firm is the sole producer of a product with no substitutes.
- Single seller/one firm industry - Differentiated products - price maker - barriers to entry into market
Has a regular demand curve. |
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Legal barriers to entry into market in pure monopoly |
- Economies of scale: producing at low price selling at high price. - Patents & copyright laws: legal barriers - control of essential resources - pricing/threatening |
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"In pure monopoly the producers is a price maker" explain. |
The producer controls its own prices depending on the nature of the product. |
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Price discrimination definition & conditions monopolist can use price discrimination to increase profit: |
Practice of selling a specific product at more than one price when price differences are not justified by cost differences (ex: movies in the AM & movies in the PM)
- monopoly power - market segregation - no resale value |
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Natural monopolies: |
An industry which economies of scale are so great that a single firm can produce and provide a product at a lower price to the consumer. (Ex: utilities) |
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X-inefficiency: |
Lack of competitiveness |
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Second degree price discrimination: |
When seller charges a uniform price per unit up to a specific quantity and lower price for additional quantity. |
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Importance of demand for resources: |
- resource pricing determines the money income of households - related to allocation resource - cost minimization - policy issues related to distribution |
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Factors of Demand for Resources: |
- changes in final product demand - changes in productivity, such as: quantities of other resources, level of technological advances, qualities of the resource. - changes in price of other resources: substitutes or complimentary resources. |
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Impact of prices of other resources: |
- complimentary resources - substitute resources |
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Substitute resources: |
Prices of machinery go down, Producers replace labor with machinery, demand for labor goes down. |
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Net effect, Substitution effect and Output effect: |
Net: determines the difference between substitution and output effect (ex: if output is larger than substitution effect, demand for labor will increase, vice versa.)
Substitution: use of machinery will result in lower cost of production (economies of scale) selling the product at a lower price the demand for the product will increase.
Output: to increase output the producer needs more labor and more machinery, demand for labor will increase. |
