Category: LP

The analysis of welfare economics is built around the concept of Pareto efficiency. However, this efficiency criterion does not always represent a satisfactory answer. Other times, certain optimality conditions cannot be satisfied, and therefore Pareto efficiency simply cannot be reached. In order to solve this problem, and to find a new way to establish which allocation is best, economists have been since searching for new criteria to make a more informed decision. In this Learning Path we’ll l...

Welfare economics analyses different states in which markets or the economy can be. Its main objective is to find an indicator or measure in order to guarantee that markets are behaving optimally, thus also guaranteeing that consumer welfare is as high as possible. Even though welfare was already analysed by economists such as Adam Smith or Jeremy Bentham, it was economists from the Classical School who thoroughly analysed the subject: Alfred Marshall saw a relationship between welfare and wealt...

The analysis of monopolies, oligopolies and perfect competition shows us that neither is real. Monopolies and oligopolies (when collusion exists) are illegal and considered as really harmful for the economy and consumer’s welfare. On the other hand, if perfect competition was real, firms would not make any profits, and therefore prices will be lower (yes, let’s face it: it does not take around 9 dollars to cook and serve a Big Mac menu). That’s where monopolistic competition comes in. Monopolist...

In the previous Learning Path on oligopolies we learned what they are and what kinds of oligopolies exist. In this LP, we'll learn about how oligopolists can collude in order to maximise their profits, even though this agreement will not likely last. Also, we'll see what entry and exit barriers are, and how they affect the number of oligopolists in the market. Finally, we'll also learn about contestable markets, which mean competitive results can also be reached in oligopolistic markets. More pr...

The bigger a firm is, the more efficient. Therefore, bigger and fewer firms in the market should mean lower prices and more goods produced. However, as we can see everyday, this is not really the case, since firms can be greedy. In this first Learning Path on Oligopolies, we'll see what oligopolies are, and how their behaviour affects the economy. We'll also see what different types of duopolies there are, and which ones are best suited to analyse this kind of market structure. In this LP, we'll...

In the first Learning Path on monopolies, we learned about what they are, how they affect social welfare and we learned about a few types. In this second LP on monopolies, we'll learn about a few more types, quite particular ones. We'll learn about discriminating monopolies, how the implement different prices in order to extract all consumer surplus. We'll also learn about natural monopolies, which are tricky since they are actually good for society. In this LP we'll learn about:   Discrimi...

Irving Fisher described monopolies as market structures where there is no competition. To neoclassical economists, a monopoly is the exact opposite to perfect competition. And an even simpler definition would be that a monopoly is just a market where there is only one seller. However, monopolies must be well understood, in order to understand why they are so harmful. In this Learning Path we'll learn about monopolies, starting with a few basic definitions and starting to learn about a few types ...

Firms in a perfectly competitive market may encounter some problems that can decrease their competitiveness and may even force them out of the market. The way they deal with problems such as taxes or other factors that increase their costs will determine whether they can stay in the market. In this Learning Path we'll learn about these problems, how firms' cost structures change, and how an equilibrium is reached in the market. In order to understand all this, we'll learn about:   Comparati...

Even though perfect competition is hard to come by, it's a good starting point to understand market structures. It's been used to analyse markets for centuries. From Adam Smith and his invisible hand, to economists such as Edward Chamberlin and Joan Robinson, who analysed different market structures, perfect competition has been used to compare different competitive situations, and to understand how marketplaces work. A deep understanding of how competitive markets work and are formed is the cor...

The analysis of market structures is of great importance when studying microeconomics. How the market will behave, depending on the number of buyers or sellers, its dimensions, the existence of entry and exit barriers, etc. will determine how an equilibrium is reached. Even though market structures were thoroughly analysed by economists from the early 20th century on, its study can be traced back to economists such as Antoine Cournot, Alfred Marshall or even Adam Smith. In this Learning Path we'...