a) The impact of government intervention on: Prices Governments can prevent monopolies charging consumers excessive prices because this might result in a loss of allocative efficiency Can make services from utility companies (water, gas and electricity) more...
a) Government intervention to control mergers The Competition and Markets Authority (CMA) is main competition regulator in UK Key aims for competition policy: • To maintain and promote competition • Ensure markets are efficient • Protect consumer interests by keeping...
a) Diagrammatic analysis of labour market equilibrium The labour market is a factor market The supply of labour is determined by those who want to be employed (the employees) Whilst the demand for labour is from employers Labour market equilibrium is determined where...
a) Factors that influence the supply of labour to a particular occupation Supply of labour is calculated by the number of workers willing and able to work at the current wage rate, multiplied by the number of hours they can work b) Market failure in labour markets:...
a) Factors that influence the demand for labour Labour market is a factor market Supply of labour is determined by those who want to be employed (employees), whilst demand for labour is from employers The demand for labour is affected by: The wage rate Downward...
a) Characteristics of contestable markets Contestable markets face actual and potential competition Entrants to contestable markets have free access to production techniques and technology No significant entry or exit barriers to industry No sunk costs in a...
a) Characteristics and conditions for a monopsony to operate Monopsony is a single buyer in a market E.g. Network rail for track maintenance and government for teachers Supermarkets have monopsony power when buying produce from farmers – means they can negotiate low...
a) Characteristics of monopoly Monopolies can be characterised as: Profit maximisation – monopolist earns supernormal profits in both the short and long run Sole seller in a market (a pure monopoly) High barriers to entry Price maker Price discrimination In UK, when...
a) Characteristics of oligopoly High barriers to entry and exit High barriers of entry to and exit from an oligopoly – makes market less competitive Economies of Scale and high degree of technology in the industry allows for high barriers to entry and exit Where it is...
a) Characteristics of monopolistically competitive markets Monopolistically competitive market has imperfect competition – firms are short run profit maximisers (due to firms selling differentiated products) Firms sell non-homogeneous products due to branding (product...
a) Characteristics of perfect competition: • Many buyers and sellers • Sellers are price takers • Free entry to and exit from the market • Perfect knowledge • Homogeneous goods • Firms are short run profit maximisers • Factors of production are perfectly mobile In...
a) Allocative efficiency Allocative efficiency occurs when resources are distributed to the goods and services most desired by the consumer (social welfare is maximised) This maximises utility – exists at P = MC – means consumers pay for the value of the marginal...
a) Condition for profit maximisation Profit – difference between total revenue and total cost – reward entrepreneurs yield when they take risks (TR – TC) Excess of firm’s revenue over cost (opportunity cost of the factors of production used) The money a firm has left...
a) Types of economies and diseconomies of scale c) Distinction between internal and external economies of scale Internal economies of scale: These occur when a firm becomes larger. Average costs of production fall as output increases. There are also network economies...
a) Formulae to calculate and understand the relationship between: Cost – opportunity cost of the factors of production used Total cost How much it costs to produce a given level of output – an increase in output results in an increase in total costs. Total costs =...
a) Formulae to calculate and understand the relationship between: Total revenue Total revenue is calculated by price x quantity sold – the revenue received from the sale of a given level of output Average revenue Average revenue (AR) is the average receipt per unit –...
a) Different business objectives and reasons for them: b) Diagrams and formulae to illustrate the different business objectives: Profit maximisation Firm’s profit – difference between its total revenue (TR) and total costs (TC) A firm’s profit maximises when they are...
a) Reasons for demergers A demerger is when a large firm is separated into multiple smaller firms • E.g. if Boots sold Halfords since it didn’t match their main activities
a) How businesses grow: b) Advantages and disadvantages of: Organic (internal) growth This is when firms grow by expanding their production through increasing output, widening their customer base, by developing a new product or by diversifying their range. Firms might...
a) Reasons why some firms tend to remain small and why others grow b) Significance of the divorce of ownership from control: The principal-agent problem The principal-agent problem can be linked to the theory of asymmetric information This is when the agent...
Trade creation occurs when there is an increase in the total amount of goods and services traded due to reduced trade barriers within a trading bloc. Trade diversion occurs when buyers in a trading bloc reduces imports from non-member countries in favour of...