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20/11 H2 Casestudy Microeconomics Section

Revise Market Structure

Economic Equity

Economy in which the apportionment of resources orgoods among the people is considered fair.

Efficiency Concepts

Economic efficiency is about making the best use of our scarce resources among competing ends so that economic and social welfare is maximised over time

Allocative efficiency - Achieved when the value consumers place on a good (reflected in the price they are willing to pay) equals the cost of the resources used up in production (i.e. price = marginal cost.)

Productive efficiency
Refers to a firm's costs of production and can be applied both to the short and long run. It is achieved when output is produced at minimum AC
Productive efficiency implies
The least costly labour capital and land inputs are used
The best available technology and the most efficient production processes
Exploiting economies of scale (getting close to minimum efficient scale)
Minimizing the wastage of resources in their production processes

Dynamic efficiency:
Dynamic efficiency occurs in a market over a period of time
It focuses on changes in the amount of consumer choice available in markets together with the quality of goods and services available

Dynamic efficiency can be boosted by
Research and development spending and a faster pace of invention and innovation
Investment in the human capital of the workforce leading to gains in product quality
Greater competition in markets and the transfer of knowledge and ideas across countries

Social efficiency
Is where social welfare is maximised
Where social marginal benefit of production / consumption = social marginal cost
Markets need to take into account externalities for social welfare to be achieved

X-inefficiency - X-inefficiency occurs when a business uses more inputs than are necessary for a given level of output

Market concentration

In economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market.

minimum efficient scale (MES)

The minimum efficient scale (MES) is the output for a business in the long run where the internal economies of scale have been fully exploited. It corresponds to the lowest point on the long run average total cost curve and is also known as the output of long run productive efficiency. The MES is rarely a single output - more likely it is a range of output levels where average cost is minimised where the firm achieves constant returns to scale. The MES will vary from industry to industry depending on the nature of the cost structure in a particular sector of the economy. When the ratio of fixed to variable costs is very high, there is great potential for reducing the average cost of production.


A reduction in long run unit costs which arise from an increase in production. Economies of scale occur when larger firms are able to lower their unit costs. This may happen for a variety of reasons. A larger firm may be able to buy in bulk, it may be able to organise production more efficiently, it may be able to raise capital cheaper and more efficiently. All of these represent economies of scale.

Oligopoly Collusion

Cartels and Collusion