Economics Study Guide — Market Structures, Equilibrium & Competition

Market Equilibrium

The point at which the quantity of a good supplied equals the quantity demanded, resulting in a stable market price.

Price Change Elasticity

Measures how sensitive quantity is to a price change; elastic demand means significant change with price change.

Surplus

Occurs when the price is set above equilibrium, leading to excess supply that exceeds quantity demanded.

Shortage

Occurs when the price is set below equilibrium, leading to excess demand that exceeds quantity supplied.

Imperfect Competition

Any market structure that does not meet the conditions of perfect competition, including monopolies and oligopolies.

Perfect Competition

A market structure with many buyers and sellers, identical products, no barriers to entry, and all participants are price takers.

Oligopoly

A market structure dominated by a small number of large firms, where each firm's decisions affect the others.

Non-price Competition

Competition using strategies other than price reduction, such as branding and customer service.

Economies of Scale

Cost advantages larger firms gain due to increased production, leading to a decrease in per-unit costs.

Market Failure

Occurs when the free market fails to allocate resources efficiently, leading to suboptimal economic outcomes.

High Price Signal

Indicates scarcity of a good or service relative to demand, prompting more supply and less demand.

Price Floor

A minimum price set by the government above the equilibrium price, leading to a surplus.

Price Ceiling

A maximum price set by the government below the equilibrium price, leading to a shortage.

Theory of Competitive Pricing

Suggests that in a competitive market, prices are driven to the lowest level that still allows producers to cover costs.

Natural Monopoly

Occurs when one firm can supply the entire market at a lower cost than multiple firms due to high infrastructure costs.

Geographic Monopoly

Exists when a firm is the only seller in a specific geographic area, limiting competition.

Technological Monopoly

Arises when a firm controls a unique technology or patent that cannot be replicated by others.

Government Monopoly

Created or sanctioned by the government, often where it grants exclusive rights to a specific firm.

Market Structure

Different forms of market organization, including perfect competition, monopolistic competition, oligopoly, and monopoly.

Sherman Antitrust Act

The first major U.S. federal law designed to prevent monopolies and promote competition through illegalizing trusts.

Price Ceiling Example

Rent control, where the government caps the maximum rent landlords can charge, often leading to housing shortages.

Price Floor Example

Federal minimum wage, a government-set lowest wage requiring funds from employers, potentially causing labor surplus.

Equilibrium Price

The price at which the quantity supplied equals the quantity demanded, clearing the market without surplus or shortage.

Shortage Definition

A condition where quantity demanded exceeds quantity supplied, occurring when the market price is below equilibrium.

Surplus Definition

A condition where quantity supplied exceeds quantity demanded, occurring when the market price is above equilibrium.