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AQA AS-Level Economics 7136
Economic Methodology and the Economic Problem
Price Determination in a Competitive Market
Topic overviewDemand, the demand curve, income and wealthSubstitutes, complements and consumer preferencesPrice elasticity of demand and total revenueThe determinants of price elasticity of demandIncome and cross elasticity of demandThe determinants of supplyPrice elasticity of supplyEquilibrium, disequilibrium and how a market clearsShifts in demand and supply, and the price mechanismThe interrelationship between markets
Production, Costs and Revenue
Perfect Competition, Imperfectly Competitive Markets and Monopoly
The Market Mechanism, Market Failure and Government Intervention
Topic overviewHow markets and prices allocate resourcesThe meaning of market failurePublic goods, private goods and quasi-public goodsPositive and negative externalitiesMerit and demerit goodsMarket imperfectionsAn inequitable distribution of income and wealthIndirect taxes and subsidiesPrice controls, state provision and regulationEvaluating intervention and the mixed economyGovernment failure
The Measurement of Macroeconomic Performance
How the Macroeconomy Works
Topic overviewThe circular flow of incomeThe aggregate demand and aggregate supply curvesWhat shifts short-run and long-run aggregate supplyMacroeconomic equilibrium and economic shocksConsumption and investmentGovernment spending and net exportsThe accelerator, saving and investmentAggregate demand and the level of economic activityThe determinants of aggregate supply
Economic Performance
Topic overviewShort-run and long-run economic growthThe economic cycle and output gapsDemand-side and supply-side shocksMeasuring unemployment and the types of unemploymentThe determinants of employment and policies to reduce unemploymentInflation and deflationThe quantity theory of moneyConsequences of inflation and deflationThe balance of payments on current accountOutput gaps and the growth-inflation conflictReconciling policy objectives in the AD/AS model
Financial Markets and Monetary Policy
Fiscal Policy and Supply-Side Policies
Perfect Competition, Imperfectly Competitive Markets and Monopoly
- 7 subtopics
- 73 things to know
- Papers 1 and 3
What Perfect Competition, Imperfectly Competitive Markets and Monopoly covers
Perfect competition, imperfectly competitive markets and monopoly is examined on Papers 1 and 3, and is the largest topic in the microeconomics half. It works along the spectrum from perfect competition to monopoly, and judges each structure on efficiency and on what it does to consumers.
Where it is assessed
Papers 1 and 3
Markets and market failure, then the synoptic paper.
Check the AQA specification ↗The 7 subtopics
Each one has its own page. AQA AS Economics students sit this topic in the first year.
- The characteristics of the four market structuresThe number of firms, product type and barriers to entry in each of the four structures.Open →
- Price takers, price makers and non-price competitionWhy some firms take the market price and others set it, and what product differentiation does.Open →
- Competitive marketsThe assumptions of a perfectly competitive market, and how price and profit are determined in one.Open →
- The objectives of firmsProfit, survival, growth, sales revenue maximisation, quality and satisficing, and how each changes behaviour.Open →
- Monopoly power and barriers to entryWhat gives a firm monopoly power, and how barriers to entry sustain it.Open →
- The costs and benefits of monopolyAllocative and productive inefficiency, X-inefficiency and deadweight loss, against economies of scale and innovation.Open →
- The dynamics of competitionHow competition drives price down, quality up and efficiency forward over time.Open →
What you need to know
Answer each one before you reveal it.
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Key term
What are the barriers to entry in oligopoly and monopoly?
Process
Why are perfectly competitive firms price takers, and what is product differentiation?
Key term
Explain how interdependence affects decision-making in an oligopoly.
Key term
Why is non-price competition common in oligopolistic markets?
Numbers
What does it mean for a firm to pursue growth, and why sacrifice short-term profit?
Numbers
How do a firm's investment and pricing decisions change with its objective?
Key term
What does homogeneity mean in a perfect market, and why does it matter?
Process
What do free entry and perfect information mean, and how is the market price set?
Process
Explain the mechanism by which supernormal profits are eliminated in a perfectly competitive market.
Numbers
What does a concentration ratio measure, and how does advertising build market power?
Numbers
What is the three-firm concentration ratio when the largest firms hold 24%, 31% and 11%, what does a high ratio show, and what does the basic monopoly model predict?
Evaluation
How might a monopolist's supernormal profits and scale benefit the economy?
Evaluation
How might large-scale production be a potential benefit of monopoly?
Key term
How do firms compete on service quality and product features rather than price?
Evaluation
Does vigorous competition between large firms remove the problem of market power?
Process
How does static efficiency differ from dynamic efficiency?
Key term
What is static efficiency, and what conditions must hold for productive and allocative efficiency?
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What are conduct and performance indicators, and what drives dynamic efficiency?
Key term
Why might monopolies achieve greater dynamic efficiency than competitive firms?
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What is satisficing, and why does behavioural economics say it arises?
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Why does ownership separate from control, and what should a firm do when marginal cost exceeds marginal revenue?
Key term
What is sales revenue maximisation, and when does survival become the objective?
Key term
Why do different firm objectives lead to different equilibrium positions?
Key term
When will a firm keep producing at a loss, and when should it shut down?
Process
Why can no single firm affect the market price in perfect competition?
Process
Why do profits fall back to normal in the long run under perfect competition?
Process
Why is a perfectly competitive firm a price taker, what does perfect knowledge mean, and what shape is the firm's demand curve?
Key term
What condition gives allocative efficiency, and why does perfect competition meet it?
Key term
Why is the assumption of homogeneous products in perfect competition considered unrealistic?
Key term
How can you identify whether a firm is earning supernormal profit?
Process
Why is the demand curve downward sloping in monopolistic competition, are there barriers to entry, and do firms have perfect knowledge and coordinate?
Process
What does the entry of new firms do to the demand curve facing existing firms?
Process
How does exit restore long-run equilibrium, and what does that position look like?
Key term
At long-run equilibrium in monopolistic competition, what two conditions are satisfied at the profit-maximising output?
Key term
At what output level does a monopolistically competitive firm produce in the short run to maximise profit?
Numbers
What is an oligopoly, and why do its firms avoid competing on price?
Numbers
How is a concentration ratio calculated, what is it when the three largest firms hold 24%, 14% and 27%, and how is oligopoly defined by conduct?
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What is non-collusive oligopoly, and how does collusion differ from cooperation?
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How does the kinked demand curve explain price rigidity in oligopoly?
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How do capital requirements, economies of scale and brand loyalty keep new firms out?
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How do concentration, differentiation and collusion shape the behaviour of oligopolists?
Process
How do patents, control of resources and predatory pricing act as barriers to entry?
Key term
What factors influence output decisions in oligopoly?
Key term
What outcomes can interdependence and uncertainty lead to in oligopoly?
Evaluation
How does product innovation arise as an advantage of oligopoly?
Key term
Why might productive inefficiency occur in oligopoly?
Numbers
What defines a monopoly, and where does it choose to produce?
Key term
What is monopoly power, and why can a monopolist keep supernormal profits?
Evaluation
What is the case in favour of monopoly and of natural monopoly?
Key term
Explain why productive inefficiency may occur under monopoly.
Numbers
Why must a price-discriminating firm have market power, and what is second-degree price discrimination?
Evaluation
Why must consumer groups differ, and what happens to surplus under first-degree discrimination?
Evaluation
What are the gains and losses from price discrimination?
Evaluation
What administrative costs might reduce the net benefit of price discrimination for firms?
Numbers
What is marginal cost, and why are monopoly positions rarely permanent?
Numbers
What is marginal revenue, and why is creative destruction fundamental to a market economy?
Evaluation
Why do firms compete on quality and features rather than simply cutting price?
Numbers
Why does competition create pressure for firms to operate efficiently in the short run?
Numbers
What reduces contestability, and what does contestability theory say matters most?
Process
What is hit-and-run competition, and what profit can a monopolist earn in a contestable market?
Key term
Why does incumbent control of essential resources reduce market contestability?
Evaluation
What is allocative efficiency, and what investment improves dynamic efficiency?
Numbers
Why is perfect competition efficient in the long run while monopoly is not?
Numbers
Name three examples of performance indicators used to compare market structures.
Numbers
Where do consumer and producer surplus sit on a diagram, and what is total welfare?
Process
How do a monopolist's price and output compare with the competitive outcome?
Key term
What happens to surplus when a monopoly replaces perfect competition?
Evaluation
What types of government intervention can be evaluated using consumer and producer surplus analysis?
Numbers
State the formula for calculating a concentration ratio.
Numbers
What is the formula for calculating marginal cost?
Numbers
What is the formula for calculating marginal revenue?
Process
What forms does non-price competition take in an oligopoly, and why is it preferred?
Take Perfect Competition, Imperfectly Competitive Markets and Monopoly further
The same content, four other ways.
Commonly confused
Pairs that lose marks when they are blurred together.
Perfect competition vs Monopoly
Perfect competition: many price-taking firms selling identical output. Monopoly: a dominant supplier protected by entry barriers.
Productive efficiency vs Allocative efficiency
Productive efficiency: production at the lowest attainable average cost. Allocative efficiency: production where price equals marginal cost.
Normal profit vs Supernormal profit
Normal profit: minimum return required to keep resources employed. Supernormal profit: return exceeding the minimum required level.
Questions from this topic
Each one with the model answer underneath.
- 1
What is a market structure?
Model answer
A market structure describes the competitive environment in which firms operate, determined by factors such as the number of firms, barriers to entry, and the nature of the product.
- 2
What three key factors determine the type of market structure in which firms operate?
Model answer
The number of firms, barriers to entry, and the nature of the product.
- 3
In perfect competition, what is meant by there being many buyers and sellers?
Model answer
There are so many buyers and sellers that no single one can influence the market price; each is too small relative to the total market.
- 4
What does it mean for products to be homogeneous in perfect competition?
Model answer
All firms sell identical products that are indistinguishable from one another, so consumers have no preference between suppliers.
- 5
What is perfect knowledge in the context of perfect competition?
Model answer
All buyers and sellers have complete information about prices, quality, and production methods, so no firm can gain an advantage through information asymmetry.
- 6
What does freedom of entry and exit mean in a perfectly competitive market?
Model answer
There are no barriers preventing new firms from entering the market or existing firms from leaving, allowing resources to move freely.
What is inside Levo
Six ways to work the same material.
Perfect Competition, Imperfectly Competitive Markets and Monopoly revision questions
- Is Perfect Competition, Imperfectly Competitive Markets and Monopoly examined at AS in AQA Economics?
- Yes. It sits in Papers 1 and 3, which you take in the first year, so it is on the AS paper as well as counting towards the full A level.
- What does Perfect Competition, Imperfectly Competitive Markets and Monopoly cover in AQA AS-Level Economics?
- 7 subtopics: the characteristics of the four market structures, price takers, price makers and non-price competition, competitive markets, the objectives of firms, monopoly power and barriers to entry, the costs and benefits of monopoly and the dynamics of competition. Each one has its own page with questions and model answers.
- How is Perfect Competition, Imperfectly Competitive Markets and Monopoly organised?
- By the AQA 7136 specification, subtopic by subtopic, so it matches the order you are taught it in.
Every question in Perfect Competition, Imperfectly Competitive Markets and Monopoly, on a schedule.
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