Unit 2- The Competitive Market

**Competitive market**

no one person can control prices or stop someone from entering a market

**Demand (D)**

the quantity of goods and services consumers are willing and able to purchase at various prices

**Market size**

if the number of consumers increases so does demand

**Expectations by the consumer**

if the price in the future is expected to increase, today's buyers’ demand will increase

**Related prices**

if two items are substitutes and the demand for one increases so will the demand for the other, if two items are complements if the demand for one increases then the demand for another will fall

**Income of consumers**

if income decreases the demand for the expensive good will fall and the demand for the cheaper product will increase

**Tastes and preferences**

if the taste for a good falls so will the demand

**Quantity demanded (QD)**

the quantity of goods and services consumers are willing and able to purchase at a specific price

**Demand Schedule**

in a table format, show how much a person would purchase

**Demand Curve**

a graph showing the trend of prices and what quantity a person would buy

**Substitution effect**

when consumers notice a price change and change their behavior by substitution one good for another

**Income effect**

when price changes lead consumers to feel like they have a different amount of income than they actually have and purchase a different quantity

**The Law of Demand**

When the price increases then the quantity demanded goes down, or when the price decreases then the quantity demanded goes up

**Normal goods**

regular goods, name brand

**Inferior goods**

generic brand, less expensive

**Substitutes and complements in demand**

two or more items that consumers will substitute for each other

**Substitutes and complement in consumption**

two or more items consumers will purchase together

**Elasticity**

how responsive consumers are to price changes, change of quantity demanded/% change of the price

**Elastic**

the price changes and consumers change, greater than the absolute value of 1

**Inelastic**

the price changes and consumers don’t, less than the absolute value of 1

**Unit elastic**

right in the middle between elastic and inelastic, the value of 1

**Supply (S)**

the quantity of goods and services producers are willing and able to sell at various prices, increases when the line moves right

**Technology**

if technology improves the supply will increase

**Competition**

when there are more producers the supply increase

**Producer expectations**

if producers think the price of the product will go up in the future they will probably hold off on production

**Input prices**

items (labor) producers buy to produce their final goods, if the input prices rise the supply will fall

**Substitutes of production**

two or more goods and services that can be produced using the same resources

* if the price and quantity supplied increase the supply of another product will fall

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**Compliments in production**

two or more goods and services that can be jointly produced given the same resources

* price and supply increase which also makes the supply of another product goes up

**Quantity supplied (QS)**

**quantity producers are willing and able to sell at a specific price**

* showed in a supply schedule (table format) or a supply curve (graph)

**Law of Supply**

when the price goes up the quantity supplied will also move up or when the price goes down the quantity supplied would go down

**Sole proprietorship**

a business firm owned by one person or the proprietor

* common in small firms in health care, real estate, retail trade, agriculture, and the arts

**Partnership**

a for-profit business firm owned by two or more people or partners who have a financial interest in the business

* many small and large firms are partnerships

**Corporation**

a business firm that is itself a legal entity

**"Limited Liability Company**

a hybrid business organization that combines features of corporations, partnerships, and sole proprietorships

**Business Franchises**

consists of a parent company and numerous associated businesses that sell a standardized good or service

**Cooperative**

a business owned by members and operated to supply members and others with goods and services

**Nonprofit Organizations**

a legal entity formed to carry out a not-for-profit mission

Income investment

lists a business revenue, expenses, and profit over some time period

**Merger**

two firms legally join together to form a single large firm

**Acquisitio**n

purchase by one firm of a controlling interest in another firm

**Horizontal merger**

combines two firms that produce the same type of product

**Vertical merger**

combines firms that operate at different stages in the production of a good

**Conglomerates**

a single business enterprise formed by combining firms from unrelated industries

**Multi-national corporation**

a company that operated in more than one country

**Productive efficiency**

products are produced at the lowest price

**Allocative efficiency**

the production represents consumer preferences

**Price signals**

how producers see what to make and who to distribute them to

**Public economics**

regulations of products by the government

**Price gouging**

a raise of the price of necessary goods in times of prices

* some regulations
* can increase import

**Below-cost pricing**

when producers can sell things for a such low price it takes other businesses out of the market

* can later increase prices when no other producers are producing

**Pure monopoly**

a market controlled by one seller with a good or service that has no close substitutes

Crony capitalism

limiting the number of producers so people are forced to buy from one seller

**Anti-trust laws**

increase competition and limit the ability to have complete control

**Vertical integration**

when a company directly owns its supply chain, can also prevent companies from making anti-competitive deals with supplies

**Patents**

allow a monopoly for a limited amount of time

**Natural monopoly**

where it is more helpful to have one group own all production, often regulated by the government

**Deregulation**

the process of removing some regulations

**Price discrimination**

charging different rates to different consumers, can charge consumers of producers

**Perfect competition**

easy to get in the market, no one has control over the price

**Monopoly**

complete control over price because it is difficult to enter the market

**Monopolistic competition**

a market with many producers and relatively low barriers, their products are similar but not identical

**Oligopoly**

a market that has high barriers to entry and is controlled by a few large companies

**Non-price competition**

distinguish their product but not by price, design, look, service

**Cartel**

producers cell for the same high price, split customers

**Collusion**

a secret agreement or cooperation especially for an illegal or deceitful purpose

**Price leadership**

when one producer changes their price and other producers have to decide to change prices as well

**Pay-off matrix**

shows how much producers would make based on other producers’ prices

**Price determination**

the price a product is sold for

**Equilibrium**

the point at which quantity demanded = quantity supplied

* when the price is higher than the equilibrium, there is a surplus
* when the price is lower than the equilibrium, there is a shortage

**Controls**

when the government sets up situations or imposes controls where things are not at equilibrium

**Quantity controls**

times where the government imposes how much of something there can be (aka a quota)

* by implementing controls, we run the risk of shortages/surpluses, because there are always tradeoffs