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ScotlandEconomics

Economic Markets: Structures and Intervention

7 dot points across 7 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do a firm's costs and revenues behave, and what output rule maximises its profit?

Costs, revenue and profit: short-run and long-run cost curves, total, average and marginal revenue, the profit-maximising MC = MR rule, and the distinction between normal and abnormal profit.
An SQA Advanced Higher Economics answer on the theory of the firm's costs and revenues: short-run and long-run cost curves, the law of diminishing returns, marginal revenue, the profit-maximising rule that marginal cost equals marginal revenue, and the difference between normal and abnormal profit.
17 min answer →

What determines wages in a labour market, and why do wages and the share of income differ so much between jobs and people?

Labour markets: the demand for labour as a derived demand and marginal revenue product, the supply of labour, wage determination in competitive and imperfect labour markets, trade unions and monopsony, and the causes of wage and income inequality.
An SQA Advanced Higher Economics answer on labour markets: labour demand as a derived demand and marginal revenue product, the supply of labour, wage determination in competitive markets, the effects of trade unions and monopsony employers, the minimum wage, and the causes of wage and income inequality.
16 min answer →

When do markets fail to allocate resources efficiently, and how, and how well, do governments respond?

Market failure and intervention: externalities, public goods, merit and demerit goods, information failure and monopoly power; the policy responses of taxes, subsidies, regulation, tradable permits and provision; competition policy; and the risk of government failure.
An SQA Advanced Higher Economics answer on market failure and intervention: externalities and the divergence of private and social cost, public goods, merit and demerit goods, information failure and monopoly power, the policy toolkit of taxes, subsidies, regulation, tradable permits and provision, competition policy, and why intervention can itself cause government failure.
18 min answer →

What happens in markets with many differentiated firms, and why does the threat of entry discipline incumbents?

Monopolistic competition: many firms with differentiated products, short-run abnormal profit competed away to long-run normal profit and excess capacity; and contestable markets where the threat of entry constrains behaviour.
An SQA Advanced Higher Economics answer on monopolistic competition and contestable markets: many firms selling differentiated products, short-run abnormal profit competed away to long-run normal profit with excess capacity, and the theory of contestable markets where low entry and exit barriers discipline incumbent firms.
15 min answer →

How does a monopoly set price and output, and when can it charge different prices to different buyers?

Monopoly: barriers to entry, the profit-maximising equilibrium with abnormal profit, the efficiency loss compared with perfect competition, and the conditions for and types of price discrimination.
An SQA Advanced Higher Economics answer on monopoly: barriers to entry, the profit-maximising equilibrium where MC equals MR, why a monopoly restricts output and raises price relative to perfect competition, the resulting efficiency loss, and the conditions for and three degrees of price discrimination.
17 min answer →

Why are oligopoly prices often stable, and when do a few large firms compete or collude?

Oligopoly: the features of a few interdependent firms, the kinked demand curve and price stability, collusion and cartels, game theory and the prisoner's dilemma, and non-price competition.
An SQA Advanced Higher Economics answer on oligopoly: the features of a market dominated by a few interdependent firms, the kinked demand curve explanation of price stability, collusion and cartels, the use of game theory and the prisoner's dilemma, and why firms compete on non-price terms.
16 min answer →

Why does a perfectly competitive market deliver only normal profit and an efficient outcome in the long run?

Perfect competition: its assumptions, short-run and long-run equilibrium, the role of entry and exit, and why it achieves both allocative and productive efficiency.
An SQA Advanced Higher Economics answer on perfect competition: its assumptions, why the firm is a price taker with horizontal demand, short-run abnormal profit, how entry and exit drive the market to long-run normal profit, and why the outcome is both allocatively and productively efficient.
16 min answer →