Unit-1 MICRO ECONOMICS Flashcards
Markets
What is a market?
A market is a place where buyers and sellers exchange goods and services, either directly or indirectly.
What is a factor market?
A market where producers buy factors of production for the production of consumer goods. In this market, producers act as buyers.
What is a product market?
A market where producers sell consumer goods, and they act as sellers.
Define market equilibrium.
A market is in equilibrium when the quantity demanded equals the quantity supplied, with no surplus or deficit.
What are the major classifications of market structures?
Perfect Competition (Pure Competition)
Imperfect Competition: Monopolistic, Oligopoly, and Monopoly
How are market structures classified?
The number of firms producing a product.
The nature of the competition and product produced.
What is total cost (TC)?
Total expenditure on factors of production, calculated as:TC = TFC + TVC(Total Fixed Cost + Total Variable Cost)
How is average cost (AC) calculated?
AC = TC / Quantity of output
Define marginal cost (MC).
The additional cost incurred when one more unit of output is produced:MC = TCn – TCn-1
What is total revenue (TR)
The total income received by the seller from selling a given amount of a product.
How is average revenue (AR) calculated?
AR = TR / Total output sold
What is marginal revenue (MR)?
The net revenue earned by selling an additional unit of a product.
What is perfect competition?
A market where a large number of producers sell homogeneous products to a large number of buyers, with no control over the market price.
List key characteristics of a perfectly competitive market.
Large number of buyers and sellers
Freedom of entry and exit for firms
Homogeneous products
No government interference
Profit maximization
Perfect mobility of goods and factors
Perfect market knowledge
Absence of transport costs
No selling/advertising costs
What are the components of total cost (TC)?
Total Fixed Cost (TFC): Costs that remain constant regardless of output.
Total Variable Cost (TVC): Costs that vary with output
Define fixed cost.
Fixed cost is the part of the total cost that does not change with the level of output, such as rent or salaries.
Define variable cost.
Variable cost is the part of the total cost that changes with the level of output, such as raw materials or electricity.
What does “average” signify in economics?
It refers to per-unit measures, such as average cost (AC) or average revenue (AR), which divide total values by the quantity of output.
What is the goal of firms in perfect competition?
The goal is to maximize profit, achieved when marginal cost (MC) equals marginal revenue (MR).
What are some examples of perfect competition in real life?
Stock markets, agricultural markets like wheat and rice, and vegetable markets.
What is monopolistic competition?
A market structure where many firms sell similar but not identical products, allowing for differentiation.
What are the features of monopolistic competition?
Many sellers and buyers.
Product differentiation.
Freedom of entry and exit.
Independent decision-making by firms.
Some control over pricing.
What is an oligopoly?
A: A market structure where a few large firms dominate the market and may engage in cooperative or competitive strategies.
Define monopoly.
A market structure with a single seller and no close substitutes for the product, granting the seller significant control over price.
