Economics Exam Preparation Flashcards

These flashcards cover important vocabulary and concepts related to economic theory, focusing on market structures, pricing strategies, and competition.

Free Entry and Exit

A condition in which firms can enter or leave an industry without barriers.

Marginal Revenue (MR)

The additional revenue gained from producing one more unit of output.

Average Revenue (AR)

The total revenue divided by the quantity of goods sold, equivalent to the price in perfect competition.

Profit Maximization in Perfect Competition

Occurs where price (P) equals marginal cost (MC).

Short-Run Shutdown Rule

A firm should shut down if the price is less than average variable cost (P < AVC).

Long-Run Exit Rule

A firm should exit the market if the price is less than average total cost (P < ATC).

Total Revenue (TR)

The total income from selling goods or services, calculated as price multiplied by quantity sold (TR = P*Q).

Total Cost (TC)

The sum of fixed costs and variable costs incurred in producing goods.

Average Total Cost (ATC)

The total cost per unit of output, calculated as total cost divided by quantity of output.

Economic Profit

The difference between total revenue and total costs, including opportunity costs.

Price Searcher

A firm that has some control over the price it charges due to product differentiation.

Deadweight Loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Market Power

The ability of a firm to influence the price of a good or service in the market.

Price Discrimination

Charging different prices to different consumers for the same good or service based on their willingness to pay.

Nash Equilibrium

A situation in a game where each player is making the best decision they can, taking into account the decisions of the other players.

Perfect Competition

A market structure characterized by a large number of small firms producing identical products with easy entry and exit.

Monopoly

A market structure where a single firm dominates and sets the price for a unique product.

Oligopoly

A market structure characterized by a small number of firms whose decisions are interdependent.

Barriers to Entry

Obstacles that prevent new firms from easily entering a market.

Game Theory

A mathematical framework for analyzing strategic interactions among rational decision-makers.

Marginal Cost (MC)

The cost of producing one more unit of a good or service.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Elastic Demand

A situation where a change in price leads to a larger percentage change in quantity demanded.

Inelastic Demand

A situation where a change in price leads to a smaller percentage change in quantity demanded.

Price Ceiling

A maximum price set by government regulations that can be charged for a good or service.

Price Floor

A minimum price set by government regulations that must be charged for a good or service.

Advertising

A marketing strategy used to increase demand for a product or service.

Total Surplus

The sum of consumer and producer surplus, representing total economic welfare in a market.

Quantity Effect

The additional revenue gained from selling one more unit at the current price.

Price Effect

The decrease in revenue that occurs when the price must be lowered to sell additional units.

Anti-trust Legislation

Laws enacted to prevent monopolistic behavior and promote competition.

Multi-Market Price Discrimination

Charging different prices to different consumer groups based on their group characteristics.

Perfect Price Discrimination

Charging each consumer the maximum price they are willing to pay.