Edexcel AS/A Level Economics revision

Monopoly basics  In theory, monopolies occur when a single firm controls a market.  However, the UK government definition of 'monopoly power' is any firm with at least 25% market share. In the real world it is also possible for firms to have market power with even lower percentages of market share.  Monopolists aim to maximise profits, which is done by reducing supply and therefore pushing prices up (compared to a competitive equilibrium). This results in a transfer of consumer surplus to the monopolist as well as deadweight loss of overall welfare.  In the diagram above, as the supply shifts from Q1 to Q2, there is a deadweight loss ABC and there is a transfer of the surplus in the small rectangle below PmonA. The surplus gained from the monopolist was originally consumer surplus, so the consumer comes out worse off, and the monopolist's total surplus is the original surplus + the surplus transferred from the...

Market failure  A recap on markets For a good in a competitive market:  Demand is derived from willingness to pay, and so the demand curve slopes downwards as  people are willing to buy more as prices decrease.  Supply is derived from firms' costs, so the supply curve slopes upwards as firms endeavour to make more money.  Supply and demand are brought together in a market , where agents exchange goods (and money).  A market equilibrium (price and quantity at equilibrium), exists where supply and demand meet and no agent has an incentive to offer more or less units at a higher or lower price.  In a perfectly competitive market, all agents are price takers,  meaning they have no ability to change the market price as each supplier and consumer is small relative to the overall size of the market.  The market equilibrium is allocatively ' Pareto  efficient', meaning that no-one can be mad...