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Two Main Forms of Economic Power
Economic power can be categorized into two main types. The first, known as market power, is the ability of an economic actor to benefit by dictating the terms of an exchange, such as setting prices for goods or wages for labor. The second type, called 'power over others,' is the capacity to command another party to act in one's interest by making a credible threat to impose substantial costs if they fail to comply. This form of power compels individuals to take actions they would not otherwise choose.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ
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Institutions and Alternative Options Determine Power in Economic Interactions
Two Main Forms of Economic Power
Assessing a Negotiation Scenario
Consider an economic interaction where a landlord wishes to raise the monthly rent for an apartment from $1,000 to $1,200. The current tenant wishes for the rent to remain at $1,000. Due to a city-wide housing shortage, there are very few other apartments available. After negotiation, they agree on a new rent of $1,150 per month. Based on the principle that power is the ability to obtain one's desired outcomes despite opposition, which statement best analyzes the distribution of power in this scenario?
Comparing Consumer Power
Power Dynamics in a Theoretical Market
Analyze each economic interaction described below. Match each scenario to the statement that best describes the balance of power between the parties involved.
In any economic negotiation, the party with significantly greater financial resources is, by definition, the party with more economic power.
Analyzing Power in a Labor Market Scenario
Consider a negotiation between a single large company, which is the only employer in a remote town, and an individual seeking a job. Because the individual has no other local employment options, their ability to negotiate for a higher salary than the initial offer is significantly ________.
A town's economy is dominated by a single large factory, which has historically set low wages due to a lack of alternative employment for residents. A new government policy is introduced that guarantees every citizen an income sufficient to cover all basic needs, regardless of their employment status. Which statement best evaluates the immediate impact of this new policy on the economic power dynamics between the factory owner and the residents?
Consider a negotiation between a single small-scale farmer and a large multinational coffee buyer. The farmer wants to secure a higher price for their beans, while the buyer wants to keep costs low. Arrange the following events in the order that would represent a continually increasing level of economic power for the farmer.
Lender Power in Credit Markets
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Market Power
Sources of Employer Power in the Labour Market
Bargaining Power
Analyzing Economic Power in a Business Scenario
A large tech company is the only major employer in a small, isolated town. As a result, it can offer wages below the industry average. Separately, to meet a tight deadline, a manager tells their team they must work an upcoming weekend, stating that anyone who refuses will be fired. How can the two forms of economic power at play be best distinguished in this scenario?
Match each form of economic power with the scenario that best exemplifies it.
Distinguishing Forms of Economic Power
Identifying Economic Power in a Labor Scenario
A pharmaceutical company holding the exclusive patent for a life-saving medication exercises 'power over others' when it doubles the drug's price, because patients are compelled to purchase it to survive.
A technology firm is the sole provider of a specialized software essential for the operations of many small businesses. The firm decides to increase its annual subscription fee by 50%, knowing that its customers have no viable alternatives and must pay the higher price to continue operating. The firm is exercising the form of economic power known as _______________.
Evaluating the Impact of Economic Power in the Gig Economy
When an employer successfully compels an employee to perform an undesirable task by threatening termination, which of the following is the most crucial underlying economic condition that gives this threat its force?
Evaluating an Employer's Use of Economic Power
Power Over Others