3.4 Market Structures

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Created by: alessiaenglish
Created on: 22-11-18 14:59

What is allocative efficiency?

When resources are distributed to the goods and services that people want

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What is productive efficiency?

When production is achieved at the lowest average cost

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What is dynamic efficiency?

When resources are allocated efficiently over time. It leads to falling LRAC. Consumer wants and needs are met over time.

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What is X-inefficiency?

When there is a lack of competition in the market thus average costs are higher than if there were competition.

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What are the characteristics of perfect competition?

1. Many buyers and sellers 2. Sellers are price takers 3. Low/no barriers to entry 4. Homogenous product 5. Perfect knowledge 6. Firms are short-run profit maximisers 7. Factors of production are perfectly mobile

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What profit is made in the short-run?

Supernormal profits

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What profit is made in the long-run? Why?

Normal profits. In the short term, firms make supernormal profits. Due to low/no barriers to entry, new firms are inspired to enter the market. This pushes supply up reducing the price meaning only normal profits can be made in the long-run.

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Other cards in this set

Card 2

Front

What is productive efficiency?

Back

When production is achieved at the lowest average cost

Card 3

Front

What is dynamic efficiency?

Back

Card 4

Front

What is X-inefficiency?

Back

Card 5

Front

What are the characteristics of perfect competition?

Back

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3.4 Market Structures