IB Diploma Programme Economics HL, Unit 2 Microeconomics (first assessment 2022). This topic covers syllabus sections 2.10 (market failure — asymmetric information) and 2.11 (market failure — market power) in full. The monopoly model reuses the shared curves — demand (average revenue) $P = 70 - Q/2$, marginal revenue $P = 70 - Q$, marginal cost $P = 10 + Q/2$ — with the profit-maximising output 40 at price 50, so every number cross-checks against the earlier drives.

Must-know for this topic:

Asymmetric information 信息不对称 (2.10) means one party to a transaction knows more than the other — the used-car seller knows the car, the borrower knows the repayment odds, the insured knows the risk. Two failure mechanisms: adverse selection 逆向选择 BEFORE the contract (the informed side self-selects badly — only lemmings get offered, only high-risks buy insurance at a pooled price), and moral hazard 道德风险 AFTER the contract (the protected side takes more risk — insured drivers drive less carefully, bailed banks lend recklessly). The market fails because mutually beneficial trades vanish: quality sellers cannot credibly signal, so prices average down and good products exit — the market for lemons. Responses: signalling (warranties, brands, credentials), screening (excesses, deductibles, credit checks), disclosure regulation, and state provision of information. Information gaps join the Unit-1 critique of rational choice: framed, partially-informed agents are the norm the policy must handle.

Market power 市场力量 (2.11) is the ability of a firm to influence price — culminating in MONOPOLY: one seller, a unique product, high barriers to entry 进入壁垒 (legal, patents, branding, control of resources, economies of scale) keeping entrants out, so the monopolist is a PRICE-MAKER. The monopoly model: profit maximisation where MR $=$ MC — $70 - Q = 10 + Q/2$ gives $60 = 1.5Q$, so $Q_m = 40$; the price read from the demand curve is $P_m = 50$; with ATC $= 30$ at that output, supernormal profit $= (50 - 30) \times 40 = 800$ per day, sustained by the barriers.

The welfare case: the competitive benchmark ($P = MC$) sits at $(60, 40)$ — so the monopolist produces 20 FEWER units at a price 10 HIGHER. The deadweight loss 无谓损失 is the triangle between demand and MC over the lost output: $\tfrac12 \times 20 \times 20 = 200$ per day, plus a transfer from consumers (higher price) to the firm. Monopoly may also bring X-inefficiency (costs drifting above the achievable floor for lack of pressure) — though economies of scale and dynamic innovation are the standard defences, and Schumpeter's case is that big profits fund the next technology.

A natural monopoly 自然垄断 has falling average costs over the whole market demand (one network is cheapest — rails, water mains): fragmenting it would RAISE costs, so the response is regulation — price capping at $P = MC$ or average-cost pricing — or state ownership, trading profit against coverage.

Oligopoly and collusion (also 2.11's scope in IB's treatment of market power): a few interdependent firms behind barriers may collude towards the monopoly outcome (cartels) or compete (price wars); regulation polices cartels. The concentration ratio 集中度 measures structure: with market shares 40, 25, 15, 10 and 10 percent, the four-firm ratio is $40 + 25 + 15 + 10 = 90\%$ — a concentrated market, though the ratio misses foreign competition and contestability. Policy responses to market power: competition law (merger control, abuse-of-dominance cases), regulation of natural monopolies, and deregulation where contestability disciplines incumbents.

• Asymmetric information definition; adverse selection vs moral hazard (before vs after the contract); the lemons market where good products exit; signalling, screening, disclosure (2.10).
• Market power and monopoly assumptions; the five barriers to entry; price-maker behaviour (2.11).
• The model: MR = MC at $Q = 40$, price 50, profit $(50-30) \times 40 = 800$; competitive benchmark $(60, 40)$; deadweight loss 200 (2.11).
• X-inefficiency; the economies-of-scale and dynamic-efficiency defences; the Schumpeter case (2.11).
• Natural monopoly: falling ATC over the market; regulate price at MC or average cost rather than fragment (2.11); oligopoly and collusion — interdependence, cartels, price wars; CR4 = 90% with its limits; competition law, regulation, deregulation.