Perfect Competition, Imperfectly Competitive Markets And Monopoly Flashcards
Natural barriers
Barriers that result from inherent features of the industry, such as economies of scale or high research and development costs; not barriers that have been erected artificially
Sunk costs
Costs that have already been incurred and cannot be recovered
Artificial barriers
Barriers erected by the firms themselves, such as high levels of advertising expenditure or predatory pricing
Predatory prices
Prices set below average cost with the aim of forcing rival firms out of business
Product differentiation
The marketing of generally similar products with minor variations or the marketing of a range of different products
Divorce of ownership of control
The owners and those who manage the firm are different groups with different objectives
Satisficing
Achieving a satisfactory outcome rather than the best possible outcome
Static efficiency
Efficiency at a particular point in time
Dynamic efficiency
Occurs in the long run, leading to the development of new products and more efficient processes that improve productive efficiency
Productive efficiency
LRAC minimised
Allocative efficiency
P = MC
Cartel
A collusive agreement by firms usually to fix prices. Sometimes there is also an agreement to restrict output and to deter the entry of new firms
Price leadership
A setting of prices in a market, usually by a dominant firm, which is then followed by other firms in the same market
Price agreement
An agreement between a firm, similar firms, suppliers or customers regarding the pricing of a good or service
Price war
Occurs when rival firms continuously lower prices to undercut each other
Price discrimination
Charging different prices to different customers for the same product or service, with the prices based on different willingness to pay
Consumer surplus
A measure of the economic welfare enjoyed by consumers: surplus utility received over and above the price paid for a good
Producer surplus
A measure of the economic welfare enjoyed by firms or producers. The difference between the price a firm succeeds in charging and the minimum price it would be prepared to accept
Contestable market
A market in which the potential exists for new firms to enter the market. A perfectly contestable market has no entry or exit barriers and no sink costs, and both incumbent firms and new entrants have access to the same level of technology
Deadweight Loss
The name given to the loss of economic welfare when the maximum attainable level of total welfare is not achieved
