Chapter 8-9 Pindyck Flashcards
It shows the amount of output that
the industry will produce in the short
run for every possible price
short -run market supply curve
measures the sensitivity of industry output to market price
elasticity of market supply
the sum over all units produced
of the differences between the
market price of the good and the
marginal cost of production.
producer surplus
Refers to an industry where input
prices do not change when
industrial output changes
constant-cost industry
refers to industries that exprience an increase in average costs when expanding
increasing-cost industry
refers to industries that experience a decrease in average costs when they grow bigger
decreasing-cost industry
a situation defined by an inefficient distribution of goods and services in the free market
market failure
market wiht only one seller
monopoly
-sole producer of a product
-controls the amount of output offered for sale
monopolist
the price received per unit sold
average revenue
the change in revenue that results from a unit change in output
marginal revenue
a market in which there is a single buyer
monopsony
a market with only a few buyers
oligopsony
ability of a single buyer or a small group of buyers to affect the price of a good or service in a market
monopsony power
keep purchasing units of the good until
the last unit purchased gives additional
value, or utility, just equal to the cost of
that last unit
marginal principle
the additional benefit from purchasing
one more unit of a good
marginal value
the additional cost of buying one more
unit of a good
marginal expenditure
priec paid per unit of a good
average expenditure
ability of a single seller or a small group of sellers to affect the price of a good or service in a market
monopoly power
only a few firms account for most or all of production
oligopolistic market
set of strategies or actions in which each firm does the best it can, given its competitors’ actions
nash equilibrium
market in which two firms compete with each other
duopoly
Firms produce a homogeneous good, and each firm treats the output of its competitors as fixed, and all firms decide simultaneously how much output to produce.
cournot model
shows the relationship between
firm’s profit maximizing output and the amount it thinks its competitors will produce.
reaction curves
point at which it
indicates that each firm correctly assumes how
much its competitor will produce and sets its
own production level accordingly.
cournot equilibrium
An oligopoly model in which one firm sets its output before the other
firms do
stackelberg model
The first firm that sets its output first will have the advantage
first mover advantage
A model that demonstrates that in a market with homogeneous
products, firms compete by setting prices to maximize profits.
Each firm treats the price of its competitors as fixed, and all firms
decide simultaneously what price to charge
bertrand model
It is a game theory example in which two prisoners must decide
separately whether to confess to a crime
prisoner’s dilemma
table that shows the
profit (or payoff) to each
firm given its decision and
the decision of its
competitor
payoff matrix
Characteristic of oligopolistic markets by which firms
are reluctant to change prices even if costs or
demands change.
price rigidity
Oligopoly model in which each firm faces a demand curve
kinked at the currently prevailing price
kinked demand curve model
occurs when the demand curve is not a
straight line but has a different
elasticity for higher and lower
prices.
kinked demand curve
Form of implicit collusion in which a firm announces a price increase in the hope that other firms will follow suit
price signaling
Pattern of pricing in which one firm regularly announces price
changes that other firms then match
price leadership
Firm with a large share of total sales that sets price to maximize profits, taking into account the supply response of smaller firms
dominant firm
formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate
prices.
cartels
differentiation characterized by improvement for same but downgrade for others
horizontal differentiation
differentiation characterized by improvement to some but downgrade to others
horizontal differentiation
differentiation characterized by being better than other products
vertical differentiation
delivers information about products
advertising
-refers to the optimal use of resources to produce goods and services that meet consumers’ need and preferences
-produce goods and services at the lowest possible
cost and at the highest possible quality
economic efficiency
-a market structure with characteristics of both monopoly and perfect competition
-many firms selling similar but not
identical products, with some degree of market
power, and relatively easy entry and exit
monopolistic competition
