Economics: Market Structure Flashcards
Cartel
Participants in collusive agreements that are made openly and formally
Complements
Goods that tend to be used together; technically, two goods whose cross-price elasticity of demand is negative
Consumer Plus
The difference between the value that a consumer places on units purchased and the amount of money that was required to pay for them
Cournot Assumption
Assumption in which each firm determines its profit-maximizing production level assuming that the other firms output will not change.
Cross-price elasticity of demand
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
Economic Costs
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
Economic profit
Equal to accounting profit less the implicit costs not included in total accounting costs; the difference between Total Revenue (TR) and Total Cost (TC)
First Degree price descrimination
When a monopolist is able to charge each customer the highest price the customer is willing to pay
Game Theory
The set of tools decision makers use to incorporate responses by rival decision makers into their strategies
Horizontal demand schedule
Implies that a given price, the response in the quantity demanded is infinite
Income Elasticity of Demand
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
Law of diminishing returns
The smallest output that a firm can produce such that its long run average costs are minimized
Marginal Value Curve
A curve describing the highest price consumers are willing to pay for each additional unit of a good
Monopolistic competition
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.
Monopoly
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
Nash Equilibrium
When two or more participants in a non-cooperative game have no incentive to deviate from their respective equilibrium strategies given their opponents strategies
Oligopoly
Market structure with a relatively small structure of firms supplying the market
Opportunity Cost
The value that investors forgo by choosing a particular course of action; the value of something in its best alternative
Perfect competition
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
Price elasticity of demand
Measures the percentage change in the quantity demanded, given a percentage change in the price of a given product
Price takers
Producers that must accept whatever price the market dictates
Second-Degree price discrimination
When the monopolist charges different per-unit prices using the quantity purchases as an indicator of how highly the customer values the product
Stackelberg Model
A prominent model of strategic decision making in which firms are assumed to maker decisions sequentially
Substitutes
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)
3rd Degree price discrimination
When the monopolist segregates customers into groups based on demographic or other characteristics and offers different pricing to each group
Vertical demand schedule
Implies that some fixed quantity is demanded, regardless of price
