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djk > Untitled Deck > Flashcards

Untitled Deck Flashcards

1
Q

Term

A

Definition

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2
Q

What is the price elasticity of demand?

A

Measures how much quantity demanded changes in response to a price change.

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3
Q

What is elastic demand?

A

When the price elasticity of demand is greater than 1.

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4
Q

What is inelastic demand?

A

When the price elasticity of demand is less than 1.

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5
Q

What is unitary elasticity?

A

When the price elasticity of demand equals 1.

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6
Q

What factors affect price elasticity of demand?

A

Substitute availability, necessity vs luxury, time, and proportion of income spent.

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7
Q

What is the total revenue test?

A

A method to assess elasticity based on how total revenue changes with price.

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8
Q

What is price elasticity of supply?

A

Measures responsiveness of quantity supplied to a change in price.

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9
Q

What is cross elasticity of demand?

A

Measures how the demand for one good responds to a price change in another good.

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10
Q

What is income elasticity of demand?

A

Measures how demand changes as consumer income changes.

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11
Q

What is perfectly inelastic demand?

A

Quantity demanded does not change regardless of price changes.

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12
Q

What are explicit costs?

A

Monetary payments made by a firm to outsiders to acquire resources.

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13
Q

What are implicit costs?

A

Opportunity costs of using resources owned by the firm.

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14
Q

What is economic profit?

A

Total revenue minus explicit and implicit costs.

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15
Q

What is accounting profit?

A

Total revenue minus explicit costs.

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16
Q

What are fixed costs?

A

Costs that do not change with the level of output.

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17
Q

What are variable costs?

A

Costs that change with the level of output.

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18
Q

What is marginal cost?

A

The additional cost of producing one more unit.

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19
Q

What is average total cost?

A

Total cost divided by quantity of output.

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20
Q

What is the law of diminishing marginal returns?

A

Adding more of a variable input to fixed inputs eventually leads to smaller increases in output.

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21
Q

What is a production function?

A

A relationship showing the maximum output that can be produced with different combinations of inputs.

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22
Q

What are the characteristics of pure competition?

A

Large number of firms, identical products, free entry/exit.

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23
Q

What is the demand curve for a firm in pure competition?

A

Perfectly elastic.

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24
Q

What is marginal revenue?

A

The additional revenue from selling one more unit.

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25
Q

What is the profit maximization rule?

A

Produce where marginal cost equals marginal revenue (MC = MR).

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26
Q

What is the short-run supply curve?

A

The portion of the marginal cost curve above AVC.

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27
Q

What is the shutdown point?

A

When price equals minimum average variable cost (P = AVC).

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28
Q

What is economic profit in the short run?

A

When total revenue exceeds total cost.

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29
Q

What happens if a firm incurs losses in the short run?

A

It continues to operate if P > AVC but exits if P < AVC.

30
Q

What is allocative efficiency in pure competition?

A

Producing the mix of goods most desired by society (P = MC).

31
Q

What is productive efficiency in pure competition?

A

Producing at the lowest cost (P = minimum ATC).

32
Q

What happens to economic profit in the long run?

A

It becomes zero due to entry and exit of firms.

33
Q

What is a constant-cost industry?

A

An industry where input costs remain unchanged as firms enter or exit.

34
Q

What is an increasing-cost industry?

A

An industry where input costs rise as firms enter.

35
Q

What is a decreasing-cost industry?

A

An industry where input costs fall as firms enter.

36
Q

What is the long-run supply curve?

A

Shows the relationship between price and quantity supplied when firms can enter or exit.

37
Q

What is dynamic efficiency?

A

Efficiency achieved through innovation and technology over time.

38
Q

How does long-run equilibrium promote efficiency?

A

It ensures both productive and allocative efficiency.

39
Q

What is economic scale adjustment?

A

Changing scale of operations to match market demand.

40
Q

Why do firms exit a market in the long run?

A

Due to sustained losses where costs exceed revenue.

41
Q

What is break-even pricing?

A

The price at which total revenue equals total cost.

42
Q

What are the characteristics of a monopoly?

A

Single seller, no close substitutes, high barriers to entry.

43
Q

What is a natural monopoly?

A

A market where a single firm can produce at a lower cost than multiple firms.

44
Q

What is marginal revenue in a monopoly?

A

It is less than price due to the downward-sloping demand curve.

45
Q

What is price discrimination?

A

Charging different prices to different consumers for the same product.

46
Q

What is the socially optimal price?

A

Price equals marginal cost (P = MC).

47
Q

What is deadweight loss in a monopoly?

A

Loss of economic efficiency due to monopolist pricing above marginal cost.

48
Q

What are barriers to entry?

A

Obstacles like patents, economies of scale, and legal restrictions.

49
Q

What is the fair-return price?

A

Price equals average total cost (P = ATC).

50
Q

What is monopoly regulation?

A

Government intervention to control prices or break up monopolies.

51
Q

What is a monopoly’s profit-maximizing output level?

A

Where marginal revenue equals marginal cost (MR = MC).

52
Q

What are the characteristics of monopolistic competition?

A

Many sellers, differentiated products, some price control.

53
Q

What is product differentiation?

A

Making products unique through quality, features, or branding.

54
Q

What is excess capacity?

A

Operating below efficient scale in the long run.

55
Q

What is nonprice competition?

A

Strategies like advertising and product improvement to attract customers.

56
Q

What is the role of advertising?

A

To increase demand and brand loyalty.

57
Q

What is the long-run equilibrium in monopolistic competition?

A

Economic profit is zero due to entry of new firms.

58
Q

How does monopolistic competition differ from perfect competition?

A

In monopolistic competition, firms sell differentiated products.

59
Q

What is allocative inefficiency?

A

Producing where price is greater than marginal cost (P > MC).

60
Q

What is productive inefficiency?

A

Operating at higher than the minimum average total cost.

61
Q

Why do firms advertise in monopolistic competition?

A

To differentiate products and capture market share.

62
Q

What are the characteristics of an oligopoly?

A

Few large firms, interdependence, barriers to entry.

63
Q

What is game theory?

A

The study of strategic interactions among firms.

64
Q

What is a dominant strategy?

A

A strategy that is the best regardless of others’ actions.

65
Q

What is Nash equilibrium?

A

A stable outcome where no player can benefit by changing strategy alone.

66
Q

What is a cartel?

A

A formal agreement to fix prices or output levels.

67
Q

What is the price leadership model?

A

One firm sets the price, and others follow to avoid price wars.

68
Q

What is collusion?

A

An agreement among firms to restrict competition.

69
Q

What is a kinked demand curve?

A

A demand curve with a segment reflecting price rigidity.

70
Q

What is interdependence in oligopoly?

A

Firms’ decisions depend on expected reactions of competitors.

71
Q

Why do cartels often fail?

A

Incentives to cheat undermine collusion agreements.

djk (5 decks)

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