In economics a shortage occurs when demand is greater than supply, causing unfulfilled demand. A shortage can occur due to Temporary supply constraints, e.g. supply disruption due to weather or accident at a factory. Fixed prices – and unexpected surge in demand, e.g. demand for fuel in cold winter. Government price controls, such as maximum …
Readers Question: What happens when the government subsidizes a product? A subsidy means the government pays part of the cost. For example, the government may give farmers a subsidy of £10 for every kilo of potatoes. The effect is to shift the supply curve to the right, leading to lower price and higher quantity demanded Diagram …
A big issue in economics is the tradeoff between efficiency and equity. Efficiency is concerned with the optimal production and allocation of resources given existing factors of production. For example, producing at the lowest cost. See: Different types of efficiency Equity is concerned with how resources are distributed throughout society. Vertical equity is concerned with …
Total revenue (TR): This is the total income a firm receives. This will equal price × quantity Average revenue (AR) = TR / Q Marginal revenue (MR) = the extra revenue gained from selling an extra unit of a good Profit = Total revenue (TR) – total costs (TC) or (AR – AC) × Q Profit …
Microeconomic topics Consumer and producer surplus Demand Substitute goods Complements Economies of scale Elasticity Price elasticity of demand Cross elasticity of demand Income elasticity of demand Price elasticity of supply Market equilibrium Production possibility frontiers Positive and normative statements Opportunity cost Specialisation and division of labour Market failure Positive externalities – the benefit to a …
Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit. Monopoly – One firm dominates the market, barriers to entry, possibly supernormal profit. Monopoly diagram Oligopoly – An industry dominated by a few firms, e.g. 5 firm concentration ratio of > 50%. Interdependence of firms Oligopoly diagram Collusive behaviour – firms seek to …
There are different diagrams that you can use to explain 0ligopoly markets. It is important to bear in mind, there are different possible ways that firms in Oligopoly can behave. 1. Kinked Demand Curve Diagram In the kinked demand curve model, the firm maximises profits at Q1, P1 where MR=MC. Thus a change in MC, …
Any potential merger must give details to the OFT. If the OFT is concerned they can refer the merger to the Competition and Markets Authority, which can examine whether the merger is in the public interest. CMA has the power to investigate a merger if Turnover of the new firm exceeds £70 million or The …