Chapter 6: Competitive Markets

These flashcards cover key vocabulary terms and concepts related to competitive markets from Chapter 6.

Competitive Markets

Markets with many buyers and many sellers of the same good, where firms try to maximize their profits.

Pareto Efficiency

A market outcome where gains from trade are maximized and no individual can be made better off without making someone else worse off.

Willingness to Pay (WTP)

The maximum amount a buyer is willing to pay for a good or service.

Willingness to Accept (WTA)

The minimum amount a seller is willing to accept to sell a good or service.

Market Equilibrium

A situation where the quantity demanded equals the quantity supplied at a certain price.

Excess Supply

A situation where the quantity supplied exceeds the quantity demanded at a given price.

Excess Demand

A situation where the quantity demanded exceeds the quantity supplied at a given price.

Marginal Cost

The cost of producing one additional unit of a good.

Gains from Trade

The total surplus that buyers and sellers receive from engaging in trade.

Price Taking Behavior

The behavior of firms in competitive markets where they accept the market price and cannot influence it.

Deadweight Loss (DWL)

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved.

Subsidy

A government payment to producers or consumers to encourage the consumption or production of a good.

Price Ceiling

A government-imposed limit on how high a price can be charged for a good or service.

Price Floor

A government-imposed lower limit on the price of a good or service.

Tax Incidence

The study of the effect of the tax on the distribution of economic welfare.

Equilibrium Price

The price at which the quantity demanded equals the quantity supplied.

Competitive Equilibrium

The point at which market supply and demand balance each other, resulting in stable prices.