in the presence of a snake and acting frightened – now they behave not as frightened as the demonstrator monkey, but very much more like the demonstrator. They spend a lot of time near the neutral stimulus and very little time near the snakes. So they have acquired a fear of snakes just by watching another monkey. And this fear is just as strong at the three-month follow-up as it was immediately after. So this is evidence that naïve rhesus monkeys who are not afraid of snakes to start off can learn that snakes are dangerous just by watching another monkey. They don’t have to be bitten by a snake or attacked by a snake or anything, they can just learn by watching another monkey.
CD2 Track 9 Ex 4.2
Listen to the extract and complete the notes.
Contestable markets
Essentially, what the theory predicts is that if an incumbent firm in such a market tries to raise its price above the marginal cost, an entrant can immediately appear, undercut that price so long as it’s in excess of the marginal cost, and still make a profit. So, if the incumbent firm responds and drops its own price to marginal cost, then the new firm, having made a profit previously, can then leave costlessly. The knowledge on the part of the incumbent firm that that is the case – that if it tries to raise its price, or if there are two or three incumbent firms if they try to raise their price, it would immediately provoke entry and the price will then sink to marginal cost – will mean that the incumbent firms will be unable to raise their price above marginal cost. The significance therefore of the notion of perfectly free entry and exit, you can see – well, I hope – it’s significant that here was a theory which was saying even if you’ve got very highly concentrated oligopolies, if these conditions hold, then you needn’t worry; there are very, very few policies you need to adopt towards such industries because they will produce a performance which is in line with that of a perfectly competitive market.
My critique, or the critique of others as well, about the theory of perfect contestability is that if you change the assumptions slightly, the predictions change dramatically. It’s very unstable. Let me give you an example of how … of what I mean by that. If in a particular market, for example, which a number of people
90 English for Academic Study
have said is contestable, if there are inevitable delays between a firm announcing it’s coming into the market and actually managing to produce – and if in coming into the market the entrant has to incur some sunk costs – they can only be slight sunk costs. So if there’s a delay, a slight delay, between the firm saying ‘I will come into the market’, the firm has to build up capacity, there’s a delay between the announcement and the actual production, and also if there are some slight exit costs – sunk costs – that the firm has to incur to come into the market, then the predictions of the model are dramatically different. An incumbent firm in such a market can charge the monopoly price, or if it’s two or three firms they can charge near the monopoly price. They can charge near the monopoly price until the entrant appears. They can then immediately drop their price to the marginal cost. The entrant, having finally come into production, would then make no money, in fact it would make a loss, it would make a loss equal to its sunk costs. If the entrant is aware of that, it would not come into the market. So the sequence is this, that, with slight alterations, if the notion of a perfectly contestable market is not met, if you make slight changes to the assumptions, even though the market may be approximately contestable, it may make a dramatic difference in the prediction because it means that the incumbent firms will continually be able to charge something approaching a monopoly price. Entry will not occur because the entrants will say, ‘I have to incur some slight sunk costs to get into this market, and I won’t be able to recover them, and I won’t make any money because as soon as I appear and produce, the price will collapse to the marginal cost.’
CD2 Track 10 Ex 5.2
Listen to the following short lecture extracts.
1. Earthquakes are a relatively rare occurrence in the United Kingdom, and when they do occur, they are generally of such low magnitude that they are frequently not recognized as such.
2. Although hospital workers may be exposed to fairly low levels of radiation, measures need to be taken to keep exposure to a minimum.
3.
Japan emerged from the postwar period with a developed electronics industry, and its emergence on the global consumer
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