Economics: Market Structure

Question 1

Cartel

Answer 1

Participants in collusive agreements that are made openly and formally

Question 2

Complements

Answer 2

Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative

Question 3

Consumer Plus

Answer 3

The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them

Question 4

Cournot Assumption

Answer 4

Assumption in which each firm determines its profit-maximizing production level assuming that the other firms output will not change.

Question 5

Cross-price elasticity of demand

Answer 5

The % change in quantity demanded for a given percentage change in the price of another good; the responsiveness of the demand for product A that is associated with the change in price of product B

Question 6

Economic Costs

Answer 6

All the remuneration needed to keep a productive resource in its current employment or to acquire the resource for productive use; the sum of total accounting costs and implicit opportunity costs

Question 7

Economic profit

Answer 7

Equal to accounting profit less the implicit costs not included in total accounting costs; the difference between Total Revenue (TR) and Total Cost (TC)

Question 8

First Degree price descrimination

Answer 8

When a monopolist is able to charge each customer the highest price the customer is willing to pay

Question 9

Game Theory

Answer 9

The set of tools decision makers use to incorporate responses by rival decision makers into their strategies

Question 10

Horizontal demand schedule

Answer 10

Implies that a given price, the response in the quantity demanded is infinite

Question 11

Income Elasticity of Demand

Answer 11

A measure of the responsiveness of demand to changes in income, defined as the percentage change in quantity demanded divided by the percentage change in income

Question 12

Law of diminishing returns

Answer 12

The smallest output that a firm can produce such that its long run average costs are minimized

Question 13

Marginal Value Curve

Answer 13

A curve describing the highest price consumers are willing to pay for each additional unit of a good

Question 14

Monopolistic competition

Answer 14

Highly competitive form of imperfect competition; the competitive characteristic is a notably large number of firms while the monopoly aspect is the result of product differentiation.

Question 15

Monopoly

Answer 15

In pure monopoly markets, there are no substitutes for the given product or service. There is a single seller, which exercises considerable power over pricing and output decisions

Question 16

Nash Equilibrium

Answer 16

When two or more participants in a non-cooperative game have no incentive to deviate from their respective equilibrium strategies given their opponents strategies

Question 17

Oligopoly

Answer 17

Market structure with a relatively small structure of firms supplying the market

Question 18

Opportunity Cost

Answer 18

The value that investors forgo by choosing a particular course of action; the value of something in its best alternative

Question 19

Perfect competition

Answer 19

A market structure in which the individual firm has virtually no impact on market price, because it is assumed to be a very small seller among a very large number of firms selling essentially identical products

Question 20

Price elasticity of demand

Answer 20

Measures the percentage change in the quantity demanded, given a percentage change in the price of a given product

Question 21

Price takers

Answer 21

Producers that must accept whatever price the market dictates

Question 22

Second-Degree price discrimination

Answer 22

When the monopolist charges different per-unit prices using the quantity purchases as an indicator of how highly the customer values the product

Question 23

Stackelberg Model

Answer 23

A prominent model of strategic decision making in which firms are assumed to maker decisions sequentially

Question 24

Substitutes

Answer 24

Said of 2 goods or services such that if the price of one increases the demand for the other tends to increase, holding all other things equal (eg, butter and margarine)

Question 25

3rd Degree price discrimination

Answer 25

When the monopolist segregates customers into groups based on demographic or other characteristics and offers different pricing to each group

Question 26

Vertical demand schedule

Answer 26

Implies that some fixed quantity is demanded, regardless of price