Economics · Unit 2: Microeconomics
EC2.11 — Market failure: market power (HL only)
Economics · SL / HL · syllabus-mapped notes
EC2.11.1
Perfect competition–many firms, free entry, homogeneous products
Explain the characteristics of perfect competition, and why it is the benchmark despite being unrealistic.
EC2.11.2
Monopoly: single or dominant firm, high barriers to entry, no close substitutes
Explain the characteristics of monopoly and the barriers to entry that sustain it.
EC2.11.3
Imperfect competition
Explain what distinguishes oligopoly and monopolistic competition from the two extremes.
EC2.11.4
Rational producer behaviour: profit maximization
Explain how a firm maximises profit where MC equals MR, and distinguish abnormal profit, normal profit and losses.
EC2.11.5
Degrees of market power
Evaluate the perfectly competitive firm, profit in the short run, normal profit in the long run, and why it achieves allocative efficiency.
EC2.11.6
Monopoly
Evaluate monopoly: show the welfare loss from restricted output and a higher price, and explain why a natural monopoly is the exception.
EC2.11.7
Oligopoly
Evaluate oligopoly: interdependence, the pull between colluding and cheating, the payoff matrix, and what concentration ratios do and do not tell you.
EC2.11.8
Monopolistic competition
Evaluate monopolistic competition: profit in the short and long run, why its demand curve is more elastic, and the trade-off between inefficiency and product variety.
EC2.11.9
Advantages of large firms having significant market power, including:
Evaluate the case for large firms, economies of scale, and abnormal profits funding research and innovation.
EC2.11.10
Risks in markets dominated by one or a few very large firms
Evaluate the risks of a market dominated by a few firms, in terms of output, price and consumer choice.
EC2.11.11
Government intervention in response to abuse of significant market power
Evaluate legislation, government ownership and fines as responses to the abuse of market power.