EC110 Market Structures and Supply-Demand Practice

A set of 100 vocabulary flashcards covering market structures, perfect competition, profit formulas, demand factors, and supply rules from the EC110 Master Notes.

Perfect competition

A market structure characterized by many firms, identical products, no barriers to entry, and firms acting as price takers.

Monopolistic competition

One of the four market structures covered in EC110.

Oligopoly

A specific market structure alongside perfect competition, monopolistic competition, and monopoly.

Monopoly

A market structure listed as part of the market structure categories in EC110.

Price takers

Firms in perfect competition that must accept the market price as given.

Horizontal demand curve

The shape of the demand curve for firms in a perfectly competitive market.

$$P = MR = AR$$

The relationship where price equals marginal revenue and average revenue in perfect competition.

Profit formula (Total)

$$\text{Profit} = TR - TC$$

Total Revenue ($TR$)

Calculated using the formula $P \times Q$.

Profit maximization rule

Firms maximize profit where $MR = MC$.

Profit maximization (Perfect Competition)

Specifically occurs where $P = MC$.

Profit formula (Average)

$$\text{Profit} = (P - ATC) \times Q$$

Profit representation in graphs

Shown visually as a rectangle.

Marginal Revenue ($MR$) graph shape

A horizontal line in a perfectly competitive firm graph.

Marginal Cost ($MC$) graph shape

An upward sloping line.

Economic Profit condition

Occurs when P > ATC.

Break even condition

Occurs when $P = ATC$.

Economic Loss condition

Occurs when P < ATC.

Shutdown rule

A firm should shut down if P < AVC.

Produce condition

If $P \geq AVC$, the firm should produce where $P = MC$.

Firm supply curve

Represented by the $MC$ curve above the $AVC$.

Market supply

The sum of all individual firms' supply.

Long run entry

Profit leads to entry, which causes the price to fall.

Long run exit

Loss leads to exit, which causes the price to rise.

Long run equilibrium formula

$$P = ATC = MC$$

Productive efficiency

Achieved when production occurs at the lowest cost.

Allocative efficiency

Achieved when $P = MC$.

Law of demand

The fundamental economic principle describing the relationship between price and quantity demanded.

Substitution effect

One of the two effects explaining the law of demand.

Income effect

One of the two effects explaining the law of demand.

Ceteris paribus

A Latin phrase meaning 'all other things being equal' used in demand analysis.

Income (Demand shift)

A factor that causes the demand curve to shift.

Related goods

A factor such as substitutes or complements that causes a demand shift.

Tastes

Consumer preferences that serve as a demand shift factor.

Population

A demographic factor that can shift the market demand curve.

Expectations

Future outlooks that act as a demand shift factor.

Normal goods

A key term used to categorize products based on consumer income levels.

Inferior goods

Goods for which demand decreases as consumer income increases.

Substitutes

Goods that can be used in place of one another.

Complements

Goods that are typically consumed together.

Movement vs shift

Key distinction between changes along a curve versus the entire curve moving.

Supply definition

The willingness to sell at various price levels.

Supply curve

A graph showing the relationship between price and quantity.

Identical product

A primary requirement for a market to be considered perfectly competitive.

No barriers

A characteristic of perfect competition where there are no obstacles to entry or exit.

Many firms

The quantity of sellers in a perfectly competitive market structure.

$$TR$$

Total Revenue.

$$TC$$

Total Cost.

$$P$$

Price.

$$Q$$

Quantity.

$$MR$$

Marginal Revenue.

$$AR$$

Average Revenue.

$$ATC$$

Average Total Cost.

$$MC$$

Marginal Cost.

$$AVC$$

Average Variable Cost.

Market structure list

Perfect competition, monopolistic competition, oligopoly, and monopoly.

Lowest cost

The defining characteristic of productive efficiency.

Price vs Quantity

The two variables plotted on the supply curve.

Supply basics

Supply is defined as the willingness to sell.

Willingness to sell

The core definition of supply provided in EC110.

Long run price rise

The market result caused by firm exit due to losses.

Long run price fall

The market result caused by firm entry due to profits.

P < AVC

The mathematical threshold for a firm to shut down.

$$P \geq AVC$$

The mathematical condition required for a firm to continue producing.

Produce where $P = MC$

The operational rule if price is greater than or equal to average variable cost.

P > ATC transition

Indicates the firm is earning a profit.

$P = ATC$ transition

Indicates the firm is at the break-even point.

P < ATC transition

Indicates the firm is sustaining a loss.

Firm supply

The portion of the marginal cost ($MC$) curve that lies above the average variable cost ($AVC$).

Sum of firms

The method used to determine market supply.

Equilibrium state

In the long run, this occurs when $P = ATC = MC$.

Efficiency: Productive

Production at the lowest cost.

Efficiency: Allocative

Production where $P = MC$.

Demand shift: Income

Shift factor related to consumer wealth.

Demand shift: Related goods

Shift factor related to the price of substitutes or complements.

Demand shift: Tastes

Shift factor related to consumer preference.

Demand shift: Population

Shift factor related to the number of consumers.

Demand shift: Expectations

Shift factor related to what consumers believe will happen in the future.

Key terms: Normal vs inferior

Categorizations based on demand changes relative to income.

Key terms: Substitutes vs complements

Categorizations based on demand changes relative to the price of other goods.

Key terms: Movement vs shift

Distinction between price-driven changes and non-price-driven changes.

Supply curve variables

Price and quantity.

Identity: $P = MR$

A component of the perfect competition identity $P = MR = AR$.

Identity: $P = AR$

A component of the perfect competition identity $P = MR = AR$.

Identity: $MR = AR$

A component of the perfect competition identity $P = MR = AR$.

Profit area

A rectangle on a graph defined by $(P - ATC) \times Q$.

Horizontal MR

The visual characteristic of marginal revenue for a price-taking firm.

Upward Sloping MC

The standard slope of the marginal cost curve in market graphs.

Profit calculation: $TR - TC$

One of two ways provided to calculate profit.

Profit calculation: $(P - ATC) \times Q$

The formula used to calculate profit graphically.

Entry effect

Price falls in the market.

Exit effect

Price rises in the market.

Profit-induced entry

Firms enter the industry when existing firms are making a profit.

Loss-induced exit

Firms leave the industry when existing firms are experiencing losses.

Shutdown mathematical rule

P < AVC

Production mathematical rule

Produce where $P = MC$ if $P \geq AVC$.

Law of demand definition

The inverse relationship described in PART 10 of the notes.

Market supply aggregation

Found by taking the sum of all individual firm supply curves.

Key definition: Substitutes

Goods used in place of another as part of demand shift analysis.

Key definition: Complements

Goods used together as part of demand shift analysis.