econ 3rd, the last
Terms
undefined, object
copy deck
- market power
- the ability of a firm to influence the price of a prodcut or the terms under which it is sold , less competitive less competitive.
- assumptions of perfect compeition
- many many sellers, lrac mes is small comparison relative to industry, selling a homogenous prodcut, (inabiliity to raise the price and get away with it). freedom of entry and exit.
- price takers in
- perfect compeition
- should the firm produce at all
- if it can cover tvc and maybe some of tfc then it will produce in SR> tfc may be postponed for a while.
- assumptions of a monopoly
- there is no compeition in a monopoly, perfect market power, the firm is the industry. monopoly sells and exclusive good entry and exit is impossible insermountable.
- why is Mr always less than price for a monopoly
- to sell one more unit they have to drop the price and drop the price of all prevous units sold. thus that extra unitl will have a lower mr than prevous.
- barreir of entry economices of scale
- if d is low only one mes firm can reap economies os calue, (natural monopoly
- barriers of entry created by goverments
- patents franches charaters licenses enviromental regulations red tape goverment procurment polies predatory pricing product differantection
- not all differences represent discrimination
- qauntity discounts wholesale and retail different time and place
- conditions for price discrimnatio
- monopoly consumer must value differnt units of the same prodcut differently no arbitage.
- results of price descrimination
- higher profits, higher output single price monopost perfectly dsciminatling monoply takes all consumer surpl
- normative effects of perfect compeition
- transfers income from consumer to producer, total surplus remains the same. the evaluation of these transfers is a value judgment.
- example of a price taker
- wheat farmers sell as much as they produce on a set world market.
- if firms fixed costs are sunkj costs
- they will exict the firm quicker if there is minus profits.
- perfect compeition for the long run
- exisitng firms must be maximizing thier profits given thier exisiting capital exisitn firms must not be suffering losses. they must not be abel to increase the scale and to reduce the long ruv average costs for compeptive firm to be
- monopoly
- a market contain a single firm
- monopolist
- a firm that is only seller in a market
- rule of monopoly
- the firm should produce a level of output such that its marginal revenue eqauls its marginal cost
- price discimination and total output.
- a monopolist that price discriminates amount units will prouce more output that will a single price monopolist.
- concentration ratios
- the fractions of the total market sales controled by speicies largest number of firms. defining the market concentration ratiosn in natioanl cements are low but they undersatnd regionalization, a cement compnay could have a monopoly over vancouver becuaes transporation costs.
- non price compeition is realy price compeition but here are some examples
- advertising, quality quarentees, bumper to bumper warrenties
- monopolist compeition
- a market structure of an indsutry in which there are many firms and freedom of
- the ecess capaticty theorem
- in the long run equilbruim in a monopolistic comepiton goods are produces were the average total costs are not.. from a soceities view, there is a tradoff between producing more brands to satisfy diverse tastse adn producign fewer brands at a lower cost per unit.
- strategic behvoir
- behvoir designed to take account of the reacitons of ones rivals to ones behvoir
- tactic colluison
- an agrement amoung seller to act jointly in thier common interest. collusion may be overter or covert.
- product diffrenation as a entry barrier
- the larger the number of differentiated prodcucts that are sold by exisitng oligpoiles the smaller the market share acaible for a new firm that is entering with a single product
- barrier to entry adverstings
- huge start up costs predatory pricing
- some rules for economic effiency
- if firms do not use the least cost method of producing their chosen outputs they are being inefficeint the marginal cost of production is not teh same for every firm in the industry the industry is not being efficent. if the total cost of producing the last tonne of steel is higher for some firms or otuehr the indersuy overall cost of rpoducign a given amount of steel is higher than ncessary
- allocatively effeicnt
- too much of one product and not enough of anouther, is resouces being used allocatively innefeicnet.
- productive effeciency for a firm
- producing output at lowest costs
- productive effeicny for an industry
- requires that the marginaol cost of production must be the same for each firm
- productive efficency for the industry
- when the industry is producing a given level of ouput at the lowest possible coasts, requires the marginal costs be eqauted across all firms in the industry
- allocative effeciency
- a situation in which the market price for each good is equal to the goods marginal cost\\ highest point ot ppb
- pc and effeicnty
- perfecitly competitive industires are productively effieicnt, if an economy could be made up of entirely perfectly competiive indsutries that economy would be allocatively effeicint.
- crtc
- candain retulations telcecomunications commtie, compeition policy is ued to promote allocative effeicny by increasing comeptition in the market place.
- marinal cost pricing
- the pricing setting price equal to marginal cost so that buyers for the alst unit are juts willing to pay the amount that it cost to maek the unit, economic losses can ensue.
- two part tarrifs
- a method of charging for a good or service in which consumer pays a falt acess fee and a speicfied amount per perchased of prodcut
- average cost pricing often called rate of return regulation
- sets prices high enough to cover total costs thus generating neir process or lossees, but kills incentives to run a buisness effeicntly, or tecnological improvments.
- oligoplies and economic growth
- many innovations of the 20th centuary was a rise of innovation resuling from oligoplistic compeitiotn.
- regulatory bodies proection from compeition
- regulatiroy bodys were meant to ensure compeition foten acted to enforce monopoly practices themselve which woulda been illgeall doen by somone elese ie ariline relguation, it prodtected air canada, saying there is not enough demand, demand changed sitll protected them holding a monopoly.
- degreguation
- 1980s, realization that regulatory bodies foten reduced compeition hindered proticitivy growth awareness that falling transporation and communication costs, caused widspread interational compeition
- compeition policy
- a policy designed to prohibit the acqusition and exisitence of monoply power by buisness firms against price fixing arragnements mergers or monopiles that operate in dterment of public interets reno depo example
- basic functions of a goverment
- monopoly of fiolence, violence can only be perprated by goveremnt goverments provide security of property a growing share of offical assistance to developing countires is taking the form of political rather than economic assistance refred to as instiution building.
- informal defence of free market
- free markets provide automatic coordiantion of actions of decetnralizated decition makers the perusit of profits inf ree markets provides stimulus to innovation and rising material living standards free markets permit a decentralization of economic power
- automatic coordination
- allows for coordination with out anyone needing to undersatnd much quicker than adminstrators
- innovation and growth
- new products and tecniques will be devised to adapt to shrotage , central planners have to pretty much gues
- decentralization of power
- through the market pwoer of large corpation is not neglatible createive destruction goverments must coerce if jobs are not available power creates major opportunhites for bribery corruption and alloction according to the tatse of adminstrator.
- market failures
- a fialure of the unregulated market system to acheive allocative effeicnt, does not mean nothing good has happneed marginal csots does not equal marignal bennifit.
- externality
- occurs whenever actions taken by firms or consumers direcly impose costs or confer beniftis on others. also called thrid party effect
- private cost
- the value of the best alternative use of resoruces use in production to the producer
- soical cost
- the value of the best alterantive use of resources used in and produced in a society
- rivalrous
- a good or servive that if you use one somone else can usee that one
- exlcudable
- a good or servie is exlcudable if its owner can prevent other from consuming it.
- private goods
- goods or sevices that are both rivalrous and excludable
- common property resoruce
- rivalrous but not exlucdalbe
- exludable but non rivalrous goods are
- art galleries, roads bridges, to avoid ineffeicnt exlcusion the goverment provides thes non rivalrosu but excludable goods, becuase mc is zero hoewver if you increase the conjecution you cuase it to be rivalrous, one more perosn means that less to use ofr anouther
- public good
- goods or services that can simultaneously provide bennifits to large groups of people, also called collective consumption goods
- free rider problem
- it is impossible to prevent anyone from using it so not everyone will play, free market wil rarley supply this good,,
- aysmmetric inforation
- a situation in which one party in a transaction has more or better relevant information about the transaction of the party
- moral hazard
- a situation in which, a firm takes advange of speical knowlage in spocialy innfeicnt behvoir. like not shvoeling the driveway becuase of insurance
- even if the are no market failures the goverment may choose to intervene in markets to acheive broader soical goals. equitable distrubiton of income, basic beleif in human rights clearly not economic
- protecing child labour laws, minimum standards on working conditions
- paternalism
- intervention in free choices of indiviudal, beucase of his own ignronance or folley
- socail responcibility
- not allowed too pay for military service for outer peopel to do it by law, social responcibility not to sell yor vote.
- cost bennifit analysis
- its hard to quanitfy the price of things
- power of the goverment to intervene
- public provision is hte most obvous rememdy , natioanl defence redistribution: taxes regulation: regulate private markets and limit monoply power, and kids cant drink
- indirect costs of goverment intervetion
- changes in cost of prodcution saftey cost of complaince red tape rent seeking behvoir, private firms ty to use poer of the goverment to increaes thier economic well being, favourable reguatlion
- decition makers objectives
- goverments seek to maximize their objectives just like producer and consumers
- public choice theory
- civil servants seek to maximize their salary and position, officals maximize their votes, voters seek to maizmize own utility, no one cares about general interest why will farmers be supported powerfull small group, cutt ing them of would lose thier vote but not neccesarily gain votes form outehr people
- rational ignorance
- when agents have no incentive to become infomerd about soem goverment policy becuase the costs of becoming informed exceed teh bennitis of any well informed deiciton ( small vote)
- goverments as monoplists
- tend to use relaively rigid rules and hence respond slowly to change buildign codes, plastic veres copper pipes, no market mechaisms would would force them to addapt quicly.
- limiited liability partnership
- general partner, unlimited liability, limiited partner limited libialiy but also takes part in running the buisness.
- limitied partner
- general unlimited liability responcible for all the firms debt partake in running the buissness, limited do not partake and are not limited libibl
- economies of scope
- cheapter to produce two products together than seperatly
- parieto diseficent
- making someone worse off without making somone better of
- problems with the kidnapper dillemma
- full knowedge, we have to assuem that each payoff includes all releveant information commitment problem, player cannot acheive hsi goal becuaes of an inability to make a creatiable trheat or prosemice commitmen deice method to create a credable threat or prosmie material verese psychological incentives
- tactit collusion: concous parreleism
- recognition fo common interests without explicit agreement, focal point pricing.
- factors taht determine cooperation or competition
- cooperation will be more likley if: small no firms, less differncaited products, d is growing rather than shrinking, domiant firm less non price comepttion hgiiher barriers of entry.