Cost-push inflation is caused by higher costs of production, such as rising oil prices, higher nominal wages, and increased commodity prices. To reduce this kind of inflation, the government can pursue deflationary monetary policy and/or supply side policies. But, in truth, it is difficult to reduce cost-push inflation because higher interest rates are likely to …
Readers Question: what are the pros and cons of price control? Summary Price controls can take the form of maximum and minimum prices. Price controls can also be used to limit price increases as a way to try and reduce the rate of inflation. Maximum prices can reduce the price of food to make it …
Definition of oligopoly An oligopoly is an industry dominated by a few large firms. For example, an industry with a five-firm concentration ratio of greater than 50% is considered an oligopoly. Examples of oligopolies Car industry – economies of scale have caused mergers so big multinationals dominate the market. The biggest car firms include Toyota, …
What are the advantages and disadvantages of monopolies? Monopolies are firms who dominate the market. Either a pure monopoly with 100% market share or a firm with monopoly power (more than 25%) A monopoly tends to set higher prices than a competitive market leading to lower consumer surplus. However, on the other hand, monopolies can …
To what extent does an increase in profit lead to an increase in economic welfare? In summary. Higher profit enables firms to invest in more research and development, leading to better products in the long-term. Higher profit also acts as a signal to other entrepreneurs to increase investment in that industry. However, others are concerned …
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 …
Governments intervene in markets to try and overcome market failure. The government may also seek to improve the distribution of resources (greater equality). The aims of government intervention in markets include Stabilise prices Provide producers/farmers with a minimum income To avoid excessive prices for goods with important social welfare Discourage demerit goods/encourage merit good Forms …
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 …