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Flashcards in Imperfect Markets + Market Power Deck (12)
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1

When does market failure occur

when resources are not allocated efficiently
total economic surplus is not being maximised and therefore requires gov intervention

2

what are the 4 main types of market failure

market power, externalities, public goods, common property resources

3

What are the 4 characteristics of an imperfect or non competitive market

1. small number of firms
2. market power
3. product differentiation (products are made to look different
4. barriers to entry

4

CHARACTERISTIC 1: Small Number of FIrms
describe the 2 types of markets that are imperfect

Monopoly - market with 1 firm only (aus post = gov regulation)
Oligopoly - market with few firms (coles and woolworths)

5

CHARACTERISTIC 3: Product Differentiation
what is product differentiation

products are made to look different because businesses with market power can afford to do so

6

CHARACTERISTIC 4: Barriers to Entry
what does this mean? AND what are 5 examples of barriers

anything that restricts entry of new firms into the market
gov regulation (aus post), control of scarce resource (only 1 diamond mine in Aus - Rio Tinto), high start up cost)

7

CHARACTERISTIC 2: Market Power
when do businesses have market power

a firm has market power if it can affect the market by varying output and setting high prices therefore - exploiting the market

8

Why do firms want market power

so that they can profit maximise = higher prices, reduced output (decreases economic welfare for society)

9

On a graph where do perfect/competitive markets produce

at equilibrium

10

what does consumer and producer surplus do on the graph

consumer surplus - decrease
producer surplus - increase

11

Is there a deadweight loss? and why

yes - total surplus decreases due to market restriction

12

draw a competitive market graph vs a non competitive market graph

qunatity decreases and price increases on non