Unit 2 Vocab - Microeconomics

market

market

any type of arrangement where buyers and sellers exchange things

scarcity

natural limitation of a resource’s availability

demand

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

law of demand

when a price is lower, the demand is higher, and vice versa

substitution effect

higher price, person buys something else

income effect

wages stay the same, prices increase, buy less

law of diminishing marginal utility

the more you have, the less satisfaction

demand curve

a physical rep of the demand schedule

law of supply

an increase in price results in an increase of supply

supply

the amount of a product a producer can sell

supply curve

a physical rep of a supply schedule

shortage

much demand, low supply, short term

ceteris peribus

When looking at a specific product and demand, we assume that nothing besides the price of that product would change

elasticity of demand

the way consumers respond to price changes

inelastic

if you buy the same amount or just a little less of a good after a price increases

elastic

if you buy much less of a good after a price increase

elasticity of supply

measures how a business will respond to changes in the price of a good or service

market equilibrium

everyone (buyers/consumers and sellers/producers) are content!

Total Revenue

Price x Quantity

firm

aka producer

government monopoly

A government-granted exclusive control over the production or distribution of a specific good or service.

concentration

% of the whole market that certain producers dominate

oligopoly

few, large firms; difficult entry; varied product; ex: cars

producer

aka firm

commodity

produced in the same way no matter how many people make it

differentiation

companies work to set themselves apart

perfect competition

large # of firms; all small; easy entry; same product; ex: agriculture

monopoly

one firm; difficult entry; unique product; ex: duke energy

consumer

a person who purchases a good/service from a producer/firm

natural monopoly

more affordable than other companies, causing most consumers to flood to their goods/services

non-price competition

using attributes that do not include price in order to draw in consumers

monopolistic competition

many producers; lots of variety; easy entry; ex: restaurants

deregulation

"rolling back" rules previously put on firms; the government no longer decides what role each company can play in a market and how much it can charge its customers

regulation

rules put on a business for various purposes, including limiting price (price controls) and barriers to entry

acquisition

when one firm buys another firm to reduce competition; a buyout

merger

when one company joins with another company to form a single firm

interstate commerce

movement of goods and services from state to state

trust

when several businesses in the same organization join forces and limit competition

Federal Trade Commission Act

Law prohibiting unfair methods of competition in interstate, but carries no criminal penalties. This law is usually used to fight illegal activities, such as mail and wire fraud, conspiracies to defraud the United States, and obstruction of justice.

Clayton Act

Law designed to prohibit mergers and acquisitions that are likely to lessen competition or increase consumer prices. Companies merging with or acquiring other companies must first notify the FTC.

Sherman Antitrust Act

Law designed to restrict the formation of monopolies on interstate commerce and foreign trade as well as prevent price fixing and collusion between firms.