3.4 Market Structures

What is allocative efficiency?
When resources are distributed to the goods and services that people want
1 of 7
What is productive efficiency?
When production is achieved at the lowest average cost
2 of 7
What is dynamic efficiency?
When resources are allocated efficiently over time. It leads to falling LRAC. Consumer wants and needs are met over time.
3 of 7
What is X-inefficiency?
When there is a lack of competition in the market thus average costs are higher than if there were competition.
4 of 7
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
5 of 7
What profit is made in the short-run?
Supernormal profits
6 of 7
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.
7 of 7

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

Preview of the front of card 3

Card 4

Front

What is X-inefficiency?

Back

Preview of the front of card 4

Card 5

Front

What are the characteristics of perfect competition?

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Market Structures resources »