Economics P2 Flashcards
market
mechanism that brings together the buyers and sellers of a good r service
market conduct
things done by firms in their capacity as buyers and sellers regarding their objectives, competition methods and inter-firm conduct
substitutes
goods/services that can be used in place of one another because they satisfy the same consumer need
complements
goods or services that are used together to provide maximum utility
market structure
refers to how industries are classified based on the nature of competition between businesses
normal profit
minimum earnings required to prevent the entrepreneur from closing the business and using his factors of production elsewhere (TR=EC + IC)
how do you determine the market supply curve?
horizontally add up the quantity supplied at a particular price by individual businesses
absolute price
A monetary value that will purchase a definite quantity of a good or service
economies vs diseconomies of scale
Economies of scale exist when long run average cost decreases as output increases, diseconomies of scale occur when long run average cost increases as output increases
barriers to entry
anything which prevents a business from entering a market and competing with other businesses such as high costs
characteristics of utility
Form: the value that an item has based on the form that it takes. Individual car parts have value, but when someone assembles them into a functional vehicle, the utility the car offers is higher
Place utility is the value that a product offers based on where the product is. E.g a swimming costume is useful when at the beach but is far less useful when you are in the snow or when it’s in your cupboard
why is MR lower than AR in an imperfect market?
The % increase in quantity demanded is greater than the % decrease in price at all points
monopoly
A market structure characterized by a single seller, selling a unique product in the market in which the monopolist faces no competition and no substitutes
oligopoly
a market structure that consists of a small number of sellers, who together have substantial influence over a certain industry
collusion
agreement between rivals to set prices and quantities to gain an unfair market advantage
non price competition
firms use non-price factors such as branding or customer service to increase demand for their products
differentiated product
a product that consumers see as distinctive in some way (the unique qualities of a specific brand)
productive efficiency vs allocative efficiency
Productive efficiency is the full utilization of factors of production to produce goods at the minimum cost.
Allocative efficiency is the ability to fulfill consumer demand by distributing goods and services competently
PED
the measure of the responsiveness of demand for a product to a change in price
short run
period of time in which a business is faced with at least one fixed input
long run
a period of time where all factors of production and costs are variable
monopolistic competition
many sellers who produce differentiated products
