Celebration Study Guide #2 - Economics

Flashcards covering core microeconomics concepts, market structures, demand and supply, and vocabulary from Celebration Study Guide #2.

Demand

The desire to own something and the ability and willingness to pay for it.

Law of Demand

The economic principle stating that, all else held equal ($\text{ceteris paribus}$), as the price of a good increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.

Demand Schedule

A table that lists the quantities of a good that an individual consumer will purchase at various different prices.

Market Demand Schedule

A table that lists the total quantities of a good that all consumers in a market will buy at each possible price.

Ceteris Paribus

A Latin phrase meaning 'all other things being held equal or constant,' used by economists to isolate the relationship between two specific variables.

Elastic

A condition in which a small percentage change in price leads to a relatively large percentage change in quantity demanded or supplied.

Inelastic

A condition in which a change in price leads to a relatively small percentage change in quantity demanded or supplied.

Law of Supply

The economic principle stating that, all else held equal, producers offer more of a good as its price increases and less as its price decreases.

Supply Schedule

A table showing the quantities of a good or service that a single producer is willing and able to offer for sale at various prices.

Market Supply Schedule

A table that lists the total quantities of a good that all producers in a market are willing and able to offer at each possible price.

Price Ceiling

A legal maximum price established by the government above which a good or service cannot be sold, typically set below the market equilibrium price.

Price Floor

A legal minimum price established by the government below which a good or service cannot be sold, typically set above the market equilibrium price.

Equilibrium & Disequilibrium

Equilibrium is the market state where quantity demanded equals quantity supplied; disequilibrium occurs when quantity supplied and quantity demanded are unequal, causing shortages or surpluses.

Perfect Competition

A market structure characterized by many buyers and sellers, standardized identical products, well-informed participants, and no barriers to entry or exit.

Barriers to Entry

Any factors or obstacles that make it difficult or costly for new firms to enter an industry or market.

Monopoly

A market structure in which a single seller dominates the market for a unique product with no close substitutes and high barriers to entry.

Geographic Monopoly

A monopoly that exists because of the physical isolation or specific location of a business, giving it no local competitors.

Technological Monopoly

A monopoly created when a firm invents or controls a unique manufacturing method, process, or scientific advancement protected by patents.

Natural Monopoly

A market situation where high fixed costs and substantial economies of scale make it most efficient for a single firm to supply the entire market.

Oligopolies

Market structures dominated by a small number of large, interdependent firms capable of influencing prices.

Sherman Anti Trust Act

An 1890 U.S. federal antitrust statute that outlawed monopolies, trusts, and contracts or conspiracies that restrain interstate or foreign trade.

Microsoft vs. U.S.

A major antitrust legal case in which Microsoft was accused of monopolistic practices by bundling its web browser with the Windows operating system.

Deregulation

The removal or reduction of government regulations and restrictions over business operations within a specific industry.

Standardized product

A good that consumers perceive as identical across all suppliers, leaving price as the primary basis of competition.

Economies of scale

Cost advantages achieved by a business when production becomes efficient, causing average costs per unit to decline as output expands.

Patent

A government grant giving an inventor exclusive rights to produce, use, or sell an invention for a specified period.

Franchise

A contractual license that gives an individual or business the exclusive right to operate and sell a parent company's goods within a specific area.

Price discrimination

The business practice of charging different prices to different customers for the same product based on willingness or ability to pay.

Price fixing

An illegal agreement among competing firms in an industry to set identical or coordinated prices rather than competing through the market.

Cartel

A formal organization of independent producers formed to coordinate production levels and fix prices to act like a monopoly.

Subsidy

A financial payment or assistance granted by the government to businesses to encourage production, lower market prices, or support an industry.

Non-price competition

A strategy where businesses distinguish their products through quality, brand name, advertising, customer service, or location rather than lower prices.

Monopolistic competition

A market structure where many sellers offer differentiated products with low barriers to entry and non-price competition.

Substitutes

Goods that can serve as replacements for each other; an increase in the price of one good leads to an increase in demand for the other.

Normal goods

Goods for which consumer demand rises as income increases, and falls as income decreases.

Inferior goods

Goods for which consumer demand falls as income increases, and rises as income decreases.

Income effect

The change in consumption of goods resulting from a change in a buyer's real purchasing power when prices change.

Substitution effect

The consumer tendency to react to a price rise by buying more of a relatively cheaper substitute good and less of the pricier good.

Complement goods

Goods that are commonly consumed together; an increase in the price of one good causes a decrease in demand for the other.

Merger

The combining of two or more independent corporations or business entities into a single unified firm.