MARKET POWER,PRICING STRATEGIES, ECONOMIC EFFICIENCY AND WELFARE

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MARKET POWER,PRICING STRATEGIES, ECONOMIC
EFFICIENCY AND WELFARE
Market Power
Pricing power
Entry barriers
Monopsony
Supply chain control
Economies of scale
Economic Efficiency
The fundamental economic problem is a scarcity of resources.
concerned with the optimal production and distribution or these
scarce resources.
There are different types of efficiency
1. Productive efficiency.
Occurs when the maximum number of goods and services are
produced with a given amount of inputs
Occur on the production possibility frontieron the curve it is
impossible to produce more goods without producing less
services.
Occur at the lowest point on the firms average costs curve
2. Allocative efficiency
When goods and services are distributed according to consumer
preferences.
An economy could be productively efficient but produce goods
people don't need this would be allocative inefficient.
occurs when the price of the good = the MC of production
3. X inefficiency:

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When firms do not have incentives to cut costs, therefore a firms
average cost may be higher than necessary.
4. Efficiency of scale
when the firms produces on the lowest point of its Long run
average cost and therefore benefits fully from economies of scale
5. Dynamic efficiency
efficiency over time
Involves the introduction of new technology and working practises
to reduce costs over time.
Static Efficiency efficiency at a particular point in time.
6.…read more

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Pricing Strategies
Aims: sell excess stock, extra revenue, increase profit,
improved cash flow
1st degree: consumer surplus is known so sold at that price e.g.
ebay
2nd degree: when a firm has surplus capacity so sells at a lower
prices to attract people who would not usually buy e.g. £1
tickets at foot ball stadium for adults to bring their kids
3rd degree: when different groups are charged different prices
e.g.…read more

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An example of a monopsony occurs when there is one major employer and
many workers seeking to gain employment.
If there is only one main employer of labour, then they have market power in
setting wages and choosing how many workers to employ.
Coal mine owner in town where coal mining is primary source of employment.
Government in employment of civil servants, nurses, police
Diagram of Monopsony
In a competitive labour market, the equilibrium will be where D=S at Q1, W1.…read more

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Monopsony in Product Markets
In several industries there is one buyer and several sellers.
Supermarkets have monopsony power in buying food from farmers. If farmers don't
sell to the big supermarkets, there are few alternatives.
Amazon.com is one of the biggest purchases of books. If publishers don't sell to
Amazon at a discounted price, they will miss out on selling to the biggest distributor of
books.…read more

Comments

davidsalter

This is a summary of the types of efficiency, price discrimination, pricing strategy and monopsony.

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