A2 Economics

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A2 Economics by Mind Map: A2 Economics

1. Perfect Competition

1.1. Perfect Comptetition

1.1.1. Many buyers and sellers, no barriers to entry, identical products, perfect information, no externalities, no economies of scale

1.2. Short Run

1.2.1. Fig. 12

1.2.2. A period of time where at least one factor of production is fixed implying that new forms will be unable to entre the maret.

1.2.3. Fig. 13

1.2.4. Shutdown condition: A firm will shutdown production when the revenue received from the sale of the goods or services produced cannot even cover the variable costs of production Shutdown occurs if marginal revenue is below average variable cost at the profit-maximizing output.

1.3. Long Run

1.3.1. A period of time where all factors are variable implying tat new firms are able to enter the industry

1.3.2. Fig. 14

1.4. Theory and Reality

1.4.1. Competition drives inefficient firms out the market, Competition pushes prices down.

1.5. Benefits of competition

1.5.1. Lower prices, lower bte, lower total profits, greater entrepreneurial activity, economic efficiency

2. Efficiency, Consumer and Producer surplus

2.1. C and P surplus

2.1.1. Consumer surplus: differenc between the price the consumer is willing to pay and the market price

2.1.2. producer surplus: difference between the market price and the price at which a firm is prepared to supply

2.1.3. Static efficiency: (p,a,x) Is at a given moment in time whereas

2.1.4. dynamic efficenncy: Occurs over time (product and process)

2.2. A, P and X efficiency

2.2.1. Allocative: This occurs where output is made in line with consumer preferences. Where P=MC

2.2.2. Fig. 15

2.2.3. Productive efficiency: This occurs at the lowest poin of the AC curve

2.2.4. Fig. 16

2.2.5. X-Inefficiency: This occurs where a firm fails to produce on its average cost curve, owing to prgaisational slack

2.2.6. Fig. 17

2.3. Gov'nt Policy

2.3.1. important developments most innovation by smaller firms, now a continuous process, not something left to chance, demand innovation becoming more important

2.4. Is PC efficient

2.4.1. Fig. 18

2.4.2. Fig. 20

2.4.3. Deadweight loss: The welfare loss associated with monopoly power

3. Concentrated Markets

3.1. Intro

3.2. Why do firms grow larger

3.2.1. Market power motive

3.2.2. Objectives of managers

3.2.3. Concentration ratio: C.R.5 = valuse of output from the 5 largest firms

3.2.4. Profit motive

3.2.5. EOS

3.2.6. Rosk motiv

3.3. How do forms grow larger

3.3.1. Internal uses the retained profits of loans of a company to finance expansion by increasing fixed and variable factors

3.3.2. External acquisition of mergers (amicable or hostile) types of merger Horiontal intigration Vertical intigration Lateral merger conglomerative merger

3.3.3. Outsourcing outsourcing some produciton operations overseas why? Technoogical change Increased Competition Pressure from the financial markets

4. Price Discrimination

4.1. Define

4.1.1. This occurs when a producer sells an identical product to different buyers at different prices for reasons unrelated to costs

4.2. Conditions

4.2.1. Difference in price elasticity of demand

4.2.2. Barriers to prevent 'market seepage'

4.3. Types

4.3.1. First degree - maximum consumers are prepared to pay

4.3.2. Second degree - bulk buyers

4.3.3. Third degree - changing price in different segments of the market

5. Oligopoly

5.1. Define

5.1.1. A market dominatd by few producers: When the top 5 firms in the market account for more than 60% of total market sales

5.2. kinked demnd curve

5.2.1. Fig. 26

5.3. importance of non price comptetition

5.3.1. Better quality of service

5.3.2. Longer opening hours

5.3.3. Discounts

5.3.4. Increase range of products

5.3.5. loyalty cards

5.4. price leadership, collusion and fixing

5.4.1. Tacit Collusion - prices and orice changes are established by a dominant firm

5.4.2. Explicit collusion under oligopoly - price fixing etc.

5.4.3. Fig. 27

5.5. Game Theory

5.5.1. Conduct and behaviour of firms

5.5.2. Prisoner Dilemma

5.6. Features

5.6.1. Interdependence , Entry Barriers, Product Branding, Non-price competition

6. Monopoly

6.1. Define

6.1.1. Greater than 25% market share

6.2. Barriers to entry

6.2.1. High Fixed Costs

6.2.2. EOS

6.2.3. Brand Loyalty

6.2.4. Legal barriers

6.2.5. Control FOP

6.2.6. Control retail outlets

6.2.7. Predaory Pricing - Fig. 22

6.3. Monopoly and efficiency

6.3.1. Fig. 24

6.4. Pros and Cons

6.4.1. Costs earn abnormal profits at the expence of efficiency and the wlfare of consumers Price higher than marginal and average costs productive and x inefficiencies

6.4.2. Benefits Exploit EOS Fig. 25

7. Contestable Markets

7.1. Intro

7.1.1. The THEORY CHALLENGED THE VIEW THAT IT WAS the number of firms that determined conduct and performance. Level of bariers to entry in a market Contestable when no barriers to entry and firms have access to the same technology

7.2. Contestable markets and performance

7.2.1. If a market it contestable there is downward pressure on price, because the prence supernormal profits act as a signal for new firms to entre the market. New node

7.2.2. Normal profit equilibrium occurs when average revenue equals average total cost

7.2.3. Fig. 28

7.3. Evaluating contestable market theory

7.3.1. No market is PERFECTLY contestable

7.3.2. The threat of hit and run competition is sufficient to make imcubent firms change their behaviour

7.3.3. Existing firms may protect themselves through patents or strategic entry barriers

7.4. Increasing contestability of markets

7.4.1. Entrepeneurial Zeal

7.4.2. Deregulation of markets

7.4.3. Competition policy New node

7.4.4. European single market

7.4.5. Technological Change

8. Market Structures

8.1. Summary

8.1.1. Defined: The organisational and oher characteristics of a market

8.1.2. Number of firms, market share of largest firms, degree to which the industry is vertically intrigrated, extent of product differentation, turnover of customers

8.2. Price makers and takers

8.2.1. Factors that determine the variety of pricing decisions: Market structure and Objectives

8.2.2. Market structure Perfect competition Pure monopoly Oligopoly Contestable markets

8.2.3. Price and Cross-price elasticity of demand

8.2.4. Product differentiation

8.2.5. The regulatory system

8.2.6. International environment

8.2.7. The Economic Cycle

8.3. Impact of technology on firms and markets

8.3.1. Technology has the capacity to enhance both production and consumption possibilities

8.3.2. Technology and Production

8.3.3. Technology and consumption

8.3.4. Impact of technology on efficiency

8.3.5. Technology and competition

9. Profit Maximisation

9.1. What is profit?

9.1.1. Normal Profit: Minimum profit necessary to attract and retain suppliers in a perfectly competitive market

9.1.2. Supernormal profit: Any profit in excess of normal profit

9.2. Maximising Profit

9.2.1. Fig. 10

9.3. Role of profit in the economy

9.3.1. Allocation of FOP, Signal for market entry, promotes innivation, investment, rewards, performance indicator

9.4. Alternative Goals

9.4.1. Akternative goals other than short term profit maximisation

9.4.2. Managerial

9.4.3. Behavioural