Economics Exam Market Structures and Macroeconomics Flashcards

Flashcards covering market structures, perfect competition, monopoly, oligopoly, market failure, labour markets, and macroeconomics concepts based on lecture notes.

Market Structures

The characteristics of a market which determine firms' behaviour, including the number of firms, ease of entry, and similarity of goods.

Characteristics that determine the market structure

• the number of firms and their relative size

• The number of firms which might enter the market

• The ease that these firms enter the market

• Level of product homogenity

Market Concentration

The degree to which large firms dominate in an industry, considering the market share of the leading firms.

Sunk Costs

Costs that are not recoverable upon exit, such as advertising expenditures.

Scale Economies

The cost advantage a business gains as it grows larger, where the cost per unit usually goes down as the scale of production increases.

Limit Pricing

A strategy where firms set the price low enough that a new competitor won't be able to make a profit if they joined the industry.

Predatory Pricing

An anti-competitive practice of lowering prices so that smaller competitors would go bankrupt.

Product Homogeneity

Goods which are identical across different firms in the market.

Asymmetric Information

A situation where some firms or market participants have more knowledge than others.

Price Takers

Buyers and sellers in a perfectly competitive market who have to accept the market price as they are not large enough to influence it.

Abnormal Profit

Extra profit earned by a firm above the level of normal profit.

Monopoly

A market structure where there is only one firm in the industry, acting as a price maker.

1st Degree Perfect Price Discrimination

A form of discrimination that captures all consumer surplus by charging each buyer exactly what they are willing to pay.

Monopsony

A market situation where only one buyer exists, allowing them to pay lower prices to suppliers than in a competitive market.

Oligopoly

A market structure where supply is concentrated in the hands of relatively few firms that are interdependent.

Kinked Demand Curve

A model explaining price rigidity in oligopolies, where price increases are not followed by rivals but price decreases are.

Cartel

A wide-range agreement among several firms to restrict competition, often by setting prices or restricting output.

Market Failure

Occurs when the free market mechanism fails to allocate resources efficiently, leading to a loss in social welfare.

Public Goods

Goods defined by non-rivalry (one person's use doesn't stop another's) and non-excludability (people cannot be stopped from using them).

Merit Goods

Goods that are underproduced if left to the free market mechanism, often because they have positive externalities.

Kuznets Curve

A theory representing the relationship where economic development initially leads to higher environmental degradation, which eventually falls at high levels of income per capita.

Government Failure

Occurs when government intervention in the market leads to a net loss of economic welfare rather than a gain.

Labour Market Immobility

Occurs when workers are not flexible enough to move from job to job according to market needs, categorized as geographical or occupational immobility.

Law of Diminishing Returns

States that marginal output will start to decline if more and more of one variable factor of production is mixed with a given quantity of a fixed factor.

Marginal Revenue Product (MRP)

The change in total revenue resulting from the employment of one additional unit of labour, determining the firm's demand for labour.

Substitution Effect (Labour)

As wages increase, the cost of leisure becomes more expensive, leading a worker to substitute leisure for more work.

Income Effect (Labour)

As wages increase, a worker feels wealthier and may choose to consume more leisure and work fewer hours while maintaining their standard of living.

Collective Bargaining

The process by which a trade union acts as a monopoly supplier of labour to negotiate wages and conditions for workers.

Gross Domestic Product (GDP)

The total market value of all goods and services produced over a period of time measured at market prices.

Marginal Propensity to Consume (MPC)

The proportion of a change in income that is spent on consumption, calculated as $\text{MPC} = \frac{\Delta C}{\Delta Y}$.

Accelerator Theory

A theory suggesting that the level of investment is linked to the rate of economic growth or changes in real income.

Aggregate Demand (AD)

The total of all demands or expenditures in the economy at any given price level, expressed as $\text{AD} = C + I + G + (X - M)$, where $C$ is consumption, $I$ is investment, $G$ is government spending, and $X-M$ is net trade.

The Multiplier Effect

The impact on aggregate demand and income resulting from a change in an injection, determined by the value of $\frac{1}{1 - \text{MPC}}$ or $\frac{1}{\text{MPW}}$.

Aggregate Supply (AS)

The sum of all industry supply curves in the economy, showing how much firms supply at each price level.