Unit 4 Vocab Quizlet

elastic range

a scenario where a change in price leads to a greater than proportional change in quantity demanded or supplied, meaning the elasticity is greater than 1

inelastic range

a scenario where the quantity demanded or supplied of a good or service changes by a smaller percentage than the price change

total revenue test

Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic

monopoly

A market in which there are many buyers but only one seller. Unique product with no close substitutes. High barriers of entry prevent firms from entering the industry. Monopolies are price makers and use some advertising.

economies of scale

factors that cause a producer's average cost per unit to fall as output rises

natural monopoly

a monopoly that arises because a single firm can supply a good or service to an entire market at a smaller cost than could two or more firms

high barriers to entry

business practices or conditions that make it difficult for new firms to enter the market

patents

exclusive rights to make or sell inventions

imperfect competition

occurs in markets that have few sellers or products that are not standardized; marginal revenue is NOT equal to the demand like in perfect competition.

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

efficiency

using resources in such a way as to maximize the production of goods and services

Allocatively Efficient

where producers supply the exact amount consumers want

productively efficient

producing in a way that best uses all of the economy's resources

price discrimination

the business practice of selling the same good at different prices to different customers

monopolistic competition

a market structure in which many companies sell products that are similar but not identical; have some control over price; low barriers of entry; a lot of non-price competition (advertising)

non-price competition

a way to attract customers through style, service, or location, but not a lower price

short-run

the period of time during which at least one of a firm's inputs is fixed

long-run

the time period in which all inputs can be varied

oligopoly

A market structure in which a few large firms dominate a market and sell identical or differentiated products; high barriers of entry and control over the price (Price Maker) - Mutual interdependence

mutual interdependence

A situation in which a change in price strategy (or in some other strategy) by one firm will affect the sales and profits of another firm (or other firms). Any firm that makes such a change can expect the other rivals to react to the change.

strategic pricing

pricing aimed at giving a company a competitive advantage over its rivals

game theory

the study of how people behave in strategic situations

Prisoner's Dilemma

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

dominant strategy

a strategy that is best for a player in a game regardless of the strategies chosen by the other players

Nash equilibrium

a situation in which economic actors interacting with one another each choose their best strategy given the strategies that all the other actors have chosen

collusion

cooperating with rivals in order to "rig" a situation. Illegal.

price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

colluding oligopoly

a group of producers that create an agreement to fix prices high, also known as cartels

1. cartels set price and output at an agreed upon level

2. firms require or identical or highly similar demand and costs

3. cartel must have a way to punish cheaters

- just a monopoly graph

non colluding oligopoly

uses kinked demand curve model

- if firms are not colluding, other firms will match price (cut in price resulting in inelastic demand) or ignore change (price raise resulting in remain same, causing elastic demand)

cartel

a formal organization of producers that agree to coordinate prices and production

kinked demand curve model

Oligopoly model in which each firm faces a demand curve kinked at the currently prevailing price: at higher prices demand is very elastic, whereas at lower prices it is inelastic.

match price

if one firm cuts its prices, then the other firms follow suit causing inelastic demand

ignore change

if one firm raises prices, others maintain same price causing elastic demand