MICRO ESSAYS REVISION
,YEAR 1
Question types
“Evaluate the case for and against (a policy)”
“Assess whether the government should intervene”
“Evaluate policies to solve x”
,YEAR 2
Question types
“””
Feedback
25 Marker
More application needed (concerning the industry in the question)
Too many assumptions leading to oversimplified argument and lack of application
Focus on actual market in evaluation
15 Marker
Use data in extracts
End paragraph with link back to question
9 Marker
Not question focused
Behavioural economics
Anchoring- tendency to rely on the first bit of information when making a choice
Altruism - concern for the welfare of others
Loss aversion - a cognitive bias that describes why, for individuals, the pain of losing is
psychologically twice as powerful as the pleasure of gaining
, Markets
Contestable markets
Monopolies - a market where one firm has over 25% of the market share
Problems of monopoly:
- Higher prices. Firms with monopoly power can set higher prices (Pm) than in a
competitive market (Pc). (Red area is supernormal profit)
- Allocative inefficiency. A monopoly is allocatively inefficient because in monopoly (at
Qm) the price is greater than MC. (P > MC). In a competitive market, the price would
be lower and more consumers would benefit from buying the good. A monopoly results
in dead-weight welfare loss indicated by the blue triangle. (this is net loss of producer
and consumer surplus)
- Productive inefficiency A monopoly is productively inefficient because the output does
not occur at the lowest point on the AC curve.
- X – Inefficiency. – It is argued that a monopoly has less incentive to cut costs because
it doesn’t face competition from other firms. Therefore the AC curve is higher than it
should be.
- Supernormal Profit. A monopolist makes Supernormal Profit Qm * (AR – AC ) leading
to an unequal distribution of income in society.
- Higher prices to suppliers – A monopoly may use its market power (monopsony power)
and pay lower prices to its suppliers. E.g. supermarkets have been criticised for paying
low prices to farmers. This is because farmers have little alternative but to supply
supermarkets who have dominant buying power.
- Diseconomies of scale – It is possible that if a monopoly gets too big it may experience
dis-economies of scale. – higher average costs because it gets too big and difficult to
coordinate.
- Lack of incentives. A monopoly faces a lack of competition, and therefore, it may have
less incentive to work at product innovation and develop better products.
,YEAR 1
Question types
“Evaluate the case for and against (a policy)”
“Assess whether the government should intervene”
“Evaluate policies to solve x”
,YEAR 2
Question types
“””
Feedback
25 Marker
More application needed (concerning the industry in the question)
Too many assumptions leading to oversimplified argument and lack of application
Focus on actual market in evaluation
15 Marker
Use data in extracts
End paragraph with link back to question
9 Marker
Not question focused
Behavioural economics
Anchoring- tendency to rely on the first bit of information when making a choice
Altruism - concern for the welfare of others
Loss aversion - a cognitive bias that describes why, for individuals, the pain of losing is
psychologically twice as powerful as the pleasure of gaining
, Markets
Contestable markets
Monopolies - a market where one firm has over 25% of the market share
Problems of monopoly:
- Higher prices. Firms with monopoly power can set higher prices (Pm) than in a
competitive market (Pc). (Red area is supernormal profit)
- Allocative inefficiency. A monopoly is allocatively inefficient because in monopoly (at
Qm) the price is greater than MC. (P > MC). In a competitive market, the price would
be lower and more consumers would benefit from buying the good. A monopoly results
in dead-weight welfare loss indicated by the blue triangle. (this is net loss of producer
and consumer surplus)
- Productive inefficiency A monopoly is productively inefficient because the output does
not occur at the lowest point on the AC curve.
- X – Inefficiency. – It is argued that a monopoly has less incentive to cut costs because
it doesn’t face competition from other firms. Therefore the AC curve is higher than it
should be.
- Supernormal Profit. A monopolist makes Supernormal Profit Qm * (AR – AC ) leading
to an unequal distribution of income in society.
- Higher prices to suppliers – A monopoly may use its market power (monopsony power)
and pay lower prices to its suppliers. E.g. supermarkets have been criticised for paying
low prices to farmers. This is because farmers have little alternative but to supply
supermarkets who have dominant buying power.
- Diseconomies of scale – It is possible that if a monopoly gets too big it may experience
dis-economies of scale. – higher average costs because it gets too big and difficult to
coordinate.
- Lack of incentives. A monopoly faces a lack of competition, and therefore, it may have
less incentive to work at product innovation and develop better products.
