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Paper 1:Economics essay plans
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- PEARSON (PEARSON)
Theme 1 and theme 3 essay plans for paper one, consists of knowledge and evaluation for all points, range of different points for each topic!!
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THEME 3:Topic: MONOPOLIES
(monopoly as a market structure)
- Firms:
Benefit as they have the potential to make huge profits for shareholders.
Super normal profits means that they have finance for investments
Can compete against large overseas organisations
Can maximise economies of scale - reduce costs and increase profits further
Lack of competitive pressure
However: Firms may not always choose to profit maximise due to X-Inefficiencies,
sales or revenue maximising etc.
LR - lack of competition means firms become complacent and may not make
maximum profits.
May not reinvest profits to expand the business.
Can lead to a misallocation of resources
- Employees:
May benefit from higher wages - profit satisficing or sales/revenue maximising means
that output is higher and more people are employed.
But because they operate at lower outputs, there tends to be fewer workers
employed. Depends on labour market conditions and whether it is a monopsonist
employer
- Society:
If monopoly is inefficient there is a welfare loss and a waste of resources
(misallocation)
- Suppliers:
If a monopolist buys all or most of the suppliers’ goods (monopsonist) - there is a
reduction in suppliers’ profits as monopolist will reduce its prices
- Consumers:
Natural monopoly
With economies of scale - more efficient therefore customers enjoy higher consumer
surplus
Can have a wide range of goods and services
But consumers may pay higher prices for lower quality service due to lower
consumption and less choice of goods
, TOPIC: CONTESTABLE MARKETS
For:
- Makes firms more productively and allocatively efficient in LR
Evaluation (Against):
- Can all markets be contestable? - Some markets have natural barriers to entry.
- Too many unregulated firms in the market - market failure - more govt intervention
- People may take the abnormal profits and leave the market (hit and run)
TOPIC: INTEGRATION and MERGERS
For:
- Increases market share - allows for increased price and can reduce competition.
- Decrease risks
- Easy expansion
- Economies of Scale
Evaluation (Against):
- Costs can be passed on to consumers
- Lack knowledge in new firm
- May not have anything to fall back on
- May not be able to get new ideas
TOPIC: OLIGOPOLIES
For:
- Less competitive barriers to entry
- Kinked demand - can decrease prices and get more market share
Evaluation (Against):
- Can lead to collusion
- Price wars/competition
- Fall in price leads to a fall in revenue
- Kinked Demand - increase prices will lead to a loss of consumers
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