3.4 Market Structures

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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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Card 2

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What is productive efficiency?

Back

When production is achieved at the lowest average cost

Card 3

Front

What is dynamic efficiency?

Back

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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
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