ECO2023 Principles of Microeconomics Final Exam Study Guide: Units 9-12

A comprehensive set of vocabulary flashcards to assist in studying for the ECO2023 Principles of Microeconomics Final Exam, covering key concepts from Units 9-12.

Market Structure Analysis

Examination of the characteristics of different market types and how they affect competition, pricing, and economic outcomes.

Perfect Competition

A market structure characterized by many small firms producing identical products with easy entry and exit, where no individual firm has market power.

Price Taker

A firm in perfect competition that cannot influence the market price and must accept the prevailing price determined by market forces.

Marginal Revenue

The change in total revenue resulting from producing and selling one additional unit of output, which equals the market price in perfect competition.

Profit-Maximizing Rule for the Perfectly Competitive Firm

To produce the quantity of output where marginal cost equals marginal revenue, as long as price exceeds average variable cost.

Normal Profit

The minimum level of profit necessary to keep a firm in operation, covering both explicit and implicit costs.

Shutdown Point

The minimum point on the firm's average variable cost curve; below this point, the firm should shut down production short-run.

Short-Run Supply Curve

The portion of a perfectly competitive firm's marginal cost curve above the minimum of its average variable cost curve.

Long Run Equilibrium in Perfect Competition

A state where firms earn normal profit, and the market achieves allocative efficiency with price equal to marginal cost.

Monopoly

A market structure characterized by a single seller with significant market power selling a unique product with no close substitutes.

Profit Maximization for the Monopoly Firm

To produce the quantity of output where marginal revenue equals marginal cost and charge the highest price consumers are willing to pay.

Market Power

The ability of a firm to influence the market price or quantity of a good or service, often due to its dominance in the market.

Barriers to Entry

Obstacles that prevent new firms from entering a market and competing, including economies of scale and legal restrictions.

Natural Monopoly

Occurs when economies of scale enable one firm to supply the entire market at a lower average cost than multiple smaller firms.

Network Externalities

The phenomenon where the value of a product increases as more people use it, creating a self-reinforcing cycle of adoption.

Rent Seeking

The process by which individuals or firms use resources to obtain government-created privileges or artificial rents.

Price Discrimination

When a firm charges different prices to different customers for the same good based on their willingness to pay.

Perfect Price Discrimination

Occurs when a firm charges each customer their maximum willingness to pay, capturing all consumer surplus.

Second-Degree Price Discrimination

Involves charging different prices based on the quantity consumed or observable characteristics.

Third-Degree Price Discrimination

Charging different prices to different market segments based on their price elasticity of demand.

Marginal Cost Pricing Rule

Setting the price of a good equal to its marginal cost to achieve allocative efficiency.

Average Cost Pricing Rule

Setting the price of a good equal to its average total cost to cover costs and earn a normal profit.

Antitrust Law

Regulations designed to promote competition and prevent anti-competitive behavior.

Monopolistic Competition

A market structure characterized by many firms selling differentiated products with some degree of market power.

Profit Maximization for the Monopolistic Firm

To produce the quantity of output where marginal revenue equals marginal cost and charge a price above average total cost.

Product Differentiation

Making a product distinct from competing products through branding, advertising, or quality differences.

Long Run Equilibrium in Monopolistic Competition

Firms earn zero economic profit as new firms enter the market due to low barriers.

Oligopoly

A market structure characterized by a small number of large firms dominating the industry.

Cartel

A group of firms that collude to restrict output and raise prices to maximize joint profits.

Game Theory

A mathematical framework used to analyze strategic interactions among decision-makers.

Simultaneous-Move Games

Strategic interactions where all players make decisions simultaneously without knowing others' decisions.

Sequential-Move Games

Strategic interactions where players make decisions sequentially, observing previous players' choices.

Nash Equilibrium

A solution concept where each player's strategy is optimal given the strategies of others.

Dominant Strategy

A strategy that yields the highest payoff for a player regardless of the strategies chosen by others.

Prisoner’s Dilemma

A non-cooperative game example where two rational individuals choose actions resulting in suboptimal outcomes.