AP Micro Quiz12

Price-taking Firm

One whose actions cannot affect the market price of the good or service it sells

Price-taking Consumer

Consumer who cannot influence the market price of the good or service

Perfectly Competitive Market

Market in which all consumers and producers are price-takers

Perfectly Competitive Industry

Industry in which all firms are price-takers

Conditions for Perfect Competition

Many Buyers and Sellers

Standardized Product

Free Entry & Exit

Full Information

Many Buyers and Sellers

For a market to be perfectly competitive, it must contain many firms, none of which have a large market share

Standardized Product

A market is perfectly competitive when consumers regard the products of different firms as the same good, also known as a commodity

Free Entry & Exit

When there are no barriers to entry into or exit from an industry

Full Information

Consumers and firms have all the relevant information about the products and prices available

Industry Supply Curve

Shows the relationship between the price of a good and the total output of the industry as a whole

Short-Run Industry Supply Curve

Shows how the quantity supplied by an industry depends on the market price, given a fixed number of firms

Long-Run Market Equilibrium

When the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for producers to enter or exit the industry

Long-Run Industry Supply Curve

Shows how the quantity supplied responds to the price once firms have had time to enter or exit the industry

Constant-Cost Industry

Firms’ cost curves are unaffected by changes in the size of the industry and the long-run IRS is horizontal

Increasing-Cost Industry

Firms’ production costs increase with the size of the industry and the long-run IRS is upward-sloping

Decreasing-Cost Industry

Firms’ production costs decrease as the industry grows and the long-run IRS is downward-sloping

Allocative Efficiency

Achieved when the goods and services produced are those most valued by society

Achieved when producing at P = MC

Productive Efficiency

Achieved when firms minimize the average cost of producing their goods

Achieved when producing at P = Min ATC

Triple Equality

Happens when P = MC = Min ATC

At this point, consumer and producer surpluses are maximized