AQA Economics UNIT 3 - Evaluating market structures: perfect competition vs. monopoly?

Basic presentation for study notes on evaluating all the different kinds of market structures tailored to AQA spec. 

Please note that presentation may appear incomplete due to page references. These references always refer to diagrams you can find in copies of the AQA Economics A2/AS textbooks - I just couldn't be bothered to find the diagram for my own revision. 

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Evaluating the different market structures
· Use of efficiency concepts
· Static efficiencies
· Productive efficiency
· X-inefficiency
· Allocative efficiency
· Dynamic efficiency
· The affect on producer and consumer surplus…read more

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Economic efficiency
· What is it?
· If a firm is economically efficient it minimises costs incurred and produces
with minimum undesired effects
· Technical efficiency
· Maximises output from the available inputs
· Productive efficiency (cost efficiency)
· Minimising the average costs of production
· It can be achieved in SR (lowest point on SR ATC curve) but true productive
efficiency is achieved in the LR (lowest point on LRAC)
· Productive efficiency for the economy as a whole is equivalent to producing
on the economy's PPF curve…read more

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X-inefficiency
· X-inefficiency
· Organisational slack caused by the absence of competitive pressures results
in X-inefficiency. Monopolies and oligopolies can be examples
· The firm incurs unnecessary costs of production for any particular scale of
fixed capacity and level of production
· On a SR ATC curve any point of production that is NOT on it's average cost
curve is x-inefficient. Any point on it's ATC curve is X-efficient
· Causes of x-inefficiency
· Technical inefficiency (e.g. employing too many workers)
· Payment of unnecessarily high wages/salaries or purchase of raw materials at
unnecessary prices…read more

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Allocative and dynamic
· Allocative efficiency
· Relates to how the economy's scarce resources are allocated between final
uses
· Occurs when P = MC in all industries/markets in the economy. Therefore the
goods produced match peoples needs and preferences
· Allocative inefficiency occurs when P=MC throughout the economy and P=MC
for a particular firm in an industry
· Dynamic efficiency
· Measures the extent to which various forms of static (technical and
productive) efficiencies improve over time
· Improvements in dynamic efficiency originate from: invention, innovation,
research and development and technological change…read more

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Economic efficiency: perfect competition
· Perfectly competitive firms in long-run equilibrium are productively,
allocatively and X efficient ­ they produce at the lowest point on their
ATC curve, where price = marginal cost (if they are not productively/X
efficient it is assumed that they will be driven out of the market as
they will not be able to make normal profits and survive)
· This however, is provided that there are NO ECONOMIES OF SCALE…read more

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