AP Microeconomics Chapter 4

Imperfect Competition

Market structure with inefficiencies present.

Perfect Competition

Market with many firms and identical products.

Monopolistic Competition

Many firms selling similar but differentiated products.

Oligopoly

Few dominant firms with high market concentration.

Monopoly

Single firm controls entire market output and price.

Price Taker

Firm that accepts market price without influence.

Price Maker

Firm that can set its own price.

Identical Product

Products that are perfect substitutes for each other.

Similar Product

Products that are not identical but closely related.

Unique Product

Product with no close substitutes available.

Barriers to Entry

Obstacles preventing new firms from entering market.

Allocative Efficiency

Resources allocated to maximize consumer satisfaction.

Productive Efficiency

Production at lowest possible cost.

Long-Run Equilibrium

Market condition where firms earn zero economic profit.

Natural Monopoly

Market structure due to economies of scale.

Fair Return Regulation

Pricing where price equals average total cost.

Socially Optimal Regulation

Pricing where price equals marginal cost.

Price Discrimination

Charging different prices to different consumers.

1st Degree Price Discrimination

Charging each customer maximum willingness to pay.

2nd Degree Price Discrimination

Charging different prices based on quantity purchased.

3rd Degree Price Discrimination

Charging different prices to different customer groups.

Nash Equilibrium

Situation where players have no incentive to deviate.

Dominant Strategy

Best strategy for a player regardless of others' actions.

Tacit Collusion

Implicit agreement among firms to avoid competition.