Wednesday

Perfect comp and contestablity

From the June 2008 paper:

Explain two differences between a perfectly competitive and a contestable market. [4]

1 mark for each difference stated, plus up to 2 marks for application of
knowledge and critical understanding, eg

In a perfectly competitive market actual competition exists, whereas in a contestable market it is the threat of competition (1) which makes the incumbent firm(s) behave as though it is in a more competitive market (1) and earn normal profits to deter potential competition from entering the market (1). A large number of firms required in a perfectly competitive market, whereas the number of firms irrelevant in a contestable market (1); in the latter it is the threat of competition rather than actual competition which determines the
behaviour of the firm (1) Product not necessarily homogenous in a contestable market (1) with critical understanding (1).

Application need not be from a transport market.

Lists with no comparison – 2 marks max.

I am reliably told that the questions for the January 2010 paper will include:

a. something about forecasting demand for transport
b. something about monetising the external costs and the difficulties in so doing

Read all these - this is the comprehension...

Also read about British Rail as the privatisation forms the basis of one of the essay questions.

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