Chapter 3 Flashcards
(27 cards)
Competition
the process by which market participants, in pursuing their own interests, attempt to outdo, outprice, outproduce, and outmaneuver each other. By extension, competition is also the process by which market participants attempt to avoid being outdone, outpriced, outproduced, or outmaneuvered by others.
Perfect competition (in extreme form)
Entry into and exit from a perfectly competitive market is
Since each competitor produces only a small share of the total output, the individual competitor cannot
- is a market composed of numerous independent sellers and buyers of an identical product, such that no one individual seller or buyer has the ability to affect the market price by changing the production level.
- unrestricted. Producers can start up or shut down production at will. Anyone can enter the market, duplicate the good, and compete for consumers’ dollars.
- significantly influence the degree of competition or the market price by entering or leaving the market.
Demand
the assumed inverse relationship between the price of a good or service and the quantity consumers are willing and able to buy during a given period, all other things held constant.
Supply
is the assumed relationship between the quantity of a good producers are willing to offer during a given period and the price, everything else held constant. Generally, because additional costs tend to rise with expanded production, this relationship is presumed to be positive
Marginal cost
is the additional cost of producing an additional unit of output.
Market equilibrium
occurs when the forces of supply and demand are in balance with no net pressure for the price and output level to change.
market surplus
is the amount by which the quantity supplied exceeds the quantity demanded at any given price.
market shortage
is the amount by which the quantity demanded exceeds the quantity supplied at any given price.
Efficiency
is the maximization of output through careful allocation of resources, given the constraints of supply (producers’ costs) and demand (consumers’ preferences).
Market inefficiency
is the extent to which potential net gains from trades are not generated.
McKenzie, Richard B.. Microeconomics for MBAs (p. 148). Cambridge University Press. Kindle Edition.
Short-run equilibrium
is the price–quantity combination that will exist as long as producers do not have time to change their production facilities (or some other resource that is fixed in the short run).
McKenzie, Richard B.. Microeconomics for MBAs (p. 148). Cambridge University Press. Kindle Edition.
Long-run equilibrium
is the price–quantity combination that will exist after firms have had time to change their production facilities (or some other resource that is fixed in the short run).
The market is a system that _________
To respond to these, producers must ________
They must compete with _______
- provides producers with incentives to deliver goods and services to others.
- meet the needs of society.
- other producers to deliver goods and services in the most cost-effective manner
A market implies that sellers and buyers can ______
It does not mean, however, that behavior is_______
What a competitor can do may be __________
- freely respond to incentives and that they have options and can choose among them.
- totally unconstrained of that producers can choose from unlimited options.
- severely limited by what rival firms are willing to do.
Demand curves for products and labor (or any other input) slope __________
Supply curves for products and labor slope _________
downward (and represent inverse relationships between price and quantity demanded).
upward (and represent positive relationships between price and quantity produced).
Determinants of demand include:
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2
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5
- a change in consumer tastes & preferences;
- a change in the price of related goods (substitutes & complements);
- a change in consumer incomes;
- a change in the number of consumers; and
- a change in expectations about future prices and incomes.
Determinants of supply include:
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2
3
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- a change in the productivity due to a change in technology;
- a change in the profitability of producing other goods;
- a change in the number of sellers in the market;
- a change in the scarcity (and prices) of various productive resources;
- a change in taxes and subsidies on production;
- a change in producer expectations about future prices.
Price and quantity in competitive markets will tend to move
toward the intersection of supply and demand, which is the point of maximum efficiency.
Market shortages will lead to price
Market surpluses will lead to price
increases.
decreases.
Equilibrium price and quantity in competitive markets can be expected to change in predictable ways relative to
increases and decreases in supply and demand.
Obstructions to price movement upward to equilibrium give rise to
Obstructions to price movement down toward equilibrium give rise to
market shortages.
market surpluses.
Wage rates are determined by
The demand for labor is a function of
The supply of labor is determined by workers’
- the interaction of essentially the same market forces that determine the prices of products.
- workers’ productivity and the prices secured for the products which workers help produce.
- opportunity costs and by working conditions.
An increase in the price of the product workers produce can lead to
An increase in worker nonwage benefits can be expected to lead to a
- an increase in workers’ wage rate in competitive labor markets.
- reduction in workers’ wage rate in competitive labor markets.
The market system is not perfect. Producers may have difficulty
People take time to
and producers can make high profits while
acquiring enough information to make reliable production decisions.
respond to incentives,
other are gathering their resources to respond to an opportunity.
