M5 Flashcards
is any organization whereby buyers and sellers of goods are kept in close touch with each other.
MARKET
MARKET FOUR BASIC COMPONENTS
- CONSUMERS
- SELLERS
- COMMODITY
- PRICE
Individuals or groups who purchase goods or services.
CONSUMERS
Entities offering goods or services for sale.
SELLERS
The product or service being exchanged.
COMMODITY
The monetary value assigned to a commodity.
PRICE
is one of the most crucial aspects in microeconomics. Since every economic activity in the market is measured as per price, it is important to know the concepts and theories related to pricing under various market forms.
PRICE DETERMINATION
TYPES OF MARKET
- PERFECT/PURE COMPETITION
- MONOPOLY
- MONOPOLISTIC
- OLIGOPOLY
- MONOPOLISTIC COMPETITION
Is a market structure characterized by a complete absence of rivalry among the individual firms. In practice, businessmen use the word competition as synonymous to rivalry
PERFECT COMPETITION
In theory,___ implies no rivalry among firms.
PERFECT COMPETITION
ASSUMPTIONS IN PERFECT COMPETITION
- LARGE NUMBER OF SELLERS AND BUYERS
- PRODUCT HOMOGENEITY
- FREE ENTRY ANF EXIT OF FIRMS
- PROFIT MAXIMIZATION
- NO GOVERNMENT REGULATION
- PERFECT MOBILITY OF FACTORS OF PRODUCTION
- PEFECT KNOWLEDEGE
If your firm fulfills assumptions 1 to 5, then you are in a ___ market. A ___market requires numbers 6 and 7 assumptions to be fulfilled.
- PURE COMPETITION
- PERFECT COMPETITION
Firms in the perfect competition and pure competition environment are___. The prevailing market price dictates their products’ prices.
PRICE TAKERS
is said to exist when one firm is the sole producer or seller of a product which has no close substitutes.
MONOPOLY
No close substitutes for the product of that firm should be available.
MONOPOLY
MONOPOLY CONDITIONS
- SINGLE PRODUCERS
- NO COMPETITORS
- MARKET ENTRY BARRIERS
- PRICE MAKER
SOURCES OF MONOPOLY
- LEGAL RESTRICTIONS
- CAPITAL COST
- NATURAL FACROT ENDOWMENT
- TARIFFS AND QUOTAS
raises the price of goods imported
into the domestic economy
TARRIF
restricts the volume that can be imported.
QUOTA
is a theoretical market structure characterized by a high level of competition and several key features that create a highly efficient and competitive environment.
PURE COMPETITION
no single producer or consumer has the power to influence market prices significantly.
PURE COMPETITION
KEY CHARACTERISTICS OF PURE COMPETITION
- MANY BUYERS AND SELLERS
- HOMOGENOUS PRODUCTS
- PERFECT INFORMATION
- FREE ENTRY AND EXIT
- PRICE TAKERS
ADVANTAGES OF PURE COMPETITION
- ALLOCATIVE EFFICIENCY
- PRODUCTIVE EFFICIENCY
- CONSUMER CHOICE
LIMITATIONS OF PURE COMPETITION
- UNREALISTIC ASSUMPTION
- LACK OF INNOVATION
provides a useful theoretical benchmark for understanding market efficiency and the dynamics of supply and demand.
PURE COMPETITION
is a market structure characterized by a blend of competitive and monopolistic elements.
MONOPOLISTIC COMPETITION
It represents a common market scenario where many firms compete, but each firm offers a slightly differentiated product.
MONOPOLISTIC COMPETITION
KEY CHARACTERISTICS OF MONOPOLISTIC COMPETITION
- MANY FIRMS
- PRODUCT DIFFERENTIATION
- FREE ENTRY AND EXIT
- SOME CONTROL OVER PRICES
- NON-PRICE COMPETITION
ADVANTAGES OF MONOPOLISTIC COMPETITION
- PRODUCT VARIETY
- INNOVATION AND DIFFERENTIATION
- CONSUMER CHOICE
LIMITATIONS OF MONOPOLISTIC COMPETITION
- EXCESS CAPACITY
- HIGHER PRICES
- INEFFICIENVY
represents a common real-world market structure where firms differentiate their products to gain a competitive edge.
MONOPOLISTIC COMPETITION
While it offers benefits such as product variety and innovation, it also comes with drawbacks like excess capacity and higher prices.
MONOPOLISTIC COMPETITION
helps analyze the dynamics of markets where firms have some degree of pricing power and differentiation, providing insights into consumer choices and market efficiency.
MONOPOLISTIC COMPETITION
Is a market structure characterized by a small number of large firms that dominate the market.
OLIGOPOLY
These firms have significant market power, and their decisions are interdependent, meaning the actions of one firm can directly affect the others.
OLIGOPOLY
lies between monopoly and competitive markets and can lead to various competitive and cooperative outcomes.
OLIGOPOLY
KEY CHARACTERISTICS OF OLIGOPOLY
- FEW LARGE FIRMS
- INTERDEPENDENCE
- BARRIERS TO ENTRY
- PRODUCT DIFFERENTIATION
- NON-PRICE COMPETITION
- PRICE RIGIDITY
MARKET BEHAVIOR AND EQUILIBRIUM OF OLIGOPOLY
- COLLUSION
- KINKED DEMAND CURVE MODEL
- GAME THEORY
- PRICE LEADERSHIP
Firms may engage in ____,
either explicitly (forming a cartel) or implicitly (informal agreements) to set prices and output levels.
COLLUSION
leads to higher prices and reduced output, similar to monopoly behavior.
COLLUSION
This model suggests that firms
face a demand curve that is kinked at the current price level. Firms expect competitors to follow price decreases but not price increases.
KINKED DEMAND CURVE MODEL
This leads to price rigidity as firms avoid changing prices due to the potential for increased competition if prices are raised.
KINKED DEMAND CURVE MODEL
analyzes strategic interactions among firms, including strategies like tit-for-tat or dominant strategies.
GAME THEORY
helps understand decision-making processes and outcomes in oligopolistic markets.
GAME THEORY
In some oligopolies, one firm,
often the largest or most dominant, sets
the price, and other firms follow.
PRICE LEADERSHIP
This leads to a coordinated
pricing strategy without formal collusion.
PRICE LEADERSHIP
ADVANTAGES OF OLIGOPOLY
- ECONOMIES OF SCALE
- INNOVATION AND INVESTMENT
- PRODUCT VARIETY
Large firms in an oligopoly can
achieve ___, reducing average costs and benefiting from lower production costs.
ECONOMIES OF SCALE
This can lead to lower prices for consumers if firms pass on cost
ECONOMIES OF SCALE
Firms with significant market
power and profits can invest in research
INNOVATION AND INVESTMENT
This can lead to technological
advancements and improved products
INNOVATION AND INVESTMENT
Differentiated products in an
oligopoly can offer consumers a range of
choices.
PRODUCT VARIETY
LIMITATIONS OF OLIGOPOLY
- HIGHER PRICES
- REDUCED OUTPUT
- RISK OF COLLUSION
represents a market structure where a few large firms exert significant control over market outcomes, leading to various competitive and cooperative behaviors.
OLIGOPOLY
While it can offer benefits such as economies of scale and innovation, it also poses challenges like higher prices and reduced competition.
OLIGOPOLY
helps analyze the strategic interactions and market dynamics in industries where firms have considerable market power.
OLIGOPOLY
