Micro essay plans
DISCUSS THE EXTENT TO WHICH A PERFECTLY COMPETITIVE MARKET STRUCTURE IS
ALWAYS MORE DESIRABLE THAN A MONOPOLY
INTRO
• Perfect competition: market structure dominated by many rms.
• Price takers, cannot a ect market supply curve.
• Freedom of entry and exit, perfect information + homogenous products.
• Monopoly: price makers, single rm in the market. A ect market price. No close substitutes.
Signi cant barriers for entry and exit. No perfect knowledge for consumers.
FOR PERFECT AGAINST PERFECT FOR MONOPOLIES AGAINST
COMPETITION COMPETITION MONOPOLIES
-Allocative e cient, -No scope for E of S, -They can face -Allocative ine cient,
P=MC. many small rms competition from P>MC, so dead weight
-Productive e cient, producing small abroad, so incentive to welfare loss for
rms produce at lowest amounts. cut costs. consumers.
point of AC curve. -Little/no consumer -Supernormal pro t -Productive ine cient,
-X-e cient, competition choice, undi erentiated made, invest in R&D. output doesn’t occur at
between rms acts as an products. -E of S, lower prices for lowest point of AC
incentive to increase -Lack of supernormal consumer. curve.
e ciency. pro t, R&D is unlikely. -More consumer choice. -X-ine ciency, less
-No incentive to develop incentive to cut cost due
new technology, this to no competition.
would be shared with -Unequal distribution of
other companies as income due to
there is perfect supernormal pro ts.
knowledge.
EVALUATE THE EXTENT TO WHICH AN INDIRECT TAX IS THE MOST EFFECTIVE
INTERVENTION IN THE MARKET FOR SUGAR
INTRO
• Sugar: demerit good, can produce negative externalities.
• Indirect tax: tax levied on goods and services rather than on income or pro ts to reduce its
consumption and demand.
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DISCUSS THE EXTENT TO WHICH A PERFECTLY COMPETITIVE MARKET STRUCTURE IS
ALWAYS MORE DESIRABLE THAN A MONOPOLY
INTRO
• Perfect competition: market structure dominated by many rms.
• Price takers, cannot a ect market supply curve.
• Freedom of entry and exit, perfect information + homogenous products.
• Monopoly: price makers, single rm in the market. A ect market price. No close substitutes.
Signi cant barriers for entry and exit. No perfect knowledge for consumers.
FOR PERFECT AGAINST PERFECT FOR MONOPOLIES AGAINST
COMPETITION COMPETITION MONOPOLIES
-Allocative e cient, -No scope for E of S, -They can face -Allocative ine cient,
P=MC. many small rms competition from P>MC, so dead weight
-Productive e cient, producing small abroad, so incentive to welfare loss for
rms produce at lowest amounts. cut costs. consumers.
point of AC curve. -Little/no consumer -Supernormal pro t -Productive ine cient,
-X-e cient, competition choice, undi erentiated made, invest in R&D. output doesn’t occur at
between rms acts as an products. -E of S, lower prices for lowest point of AC
incentive to increase -Lack of supernormal consumer. curve.
e ciency. pro t, R&D is unlikely. -More consumer choice. -X-ine ciency, less
-No incentive to develop incentive to cut cost due
new technology, this to no competition.
would be shared with -Unequal distribution of
other companies as income due to
there is perfect supernormal pro ts.
knowledge.
EVALUATE THE EXTENT TO WHICH AN INDIRECT TAX IS THE MOST EFFECTIVE
INTERVENTION IN THE MARKET FOR SUGAR
INTRO
• Sugar: demerit good, can produce negative externalities.
• Indirect tax: tax levied on goods and services rather than on income or pro ts to reduce its
consumption and demand.
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