Microeconomics Final Exam Vocab

collusion

collusion

Agreement between rivals to limit competition with each other

firm demand curve

Illustrates how quantity demanded by buyers from individual business varies as it changes the price it charges

imperfect competition

Market featuring a few competitors, but with sufficiently limited competition that sellers still have some market power. ie, oligopoly and monopolistic competition

marginal revenue

Addition to total revenue from selling one more unit

market power

the extent to which a seller can charge a higher price without losing many sales to a competitor

monopolistic competition

Market structure in which many competing small business sell differentiated products. More market power is derived from more different products

monopoly

Market structure in which there is only one seller in the market with lots of market power

natural monopoly

Market in which it is cheapest for a single business to service the market

oligopoly

Market structure with only a handful of large sellers with substantial market power

perfect competition

Market structrue where all businesses in an industry sell identical goods and have no market power

product differentiation

Making products more different from those of competitors

Rational Rule for Sellers

Sell one more item if the marginal revenue is greater than or equal to the marginal cost

Output Effect

Gain revenue from selling a larger quantity of items

Discount Effect

Losing revenue from lowering price

compensating differential

Differences in wages required to offset desirable and undesirable aspects of a job

discrimination

Treating people differently based on characteristics like sex, race, ethnicity, sexual orientation, gender identity, religion, disability, social class, etc.

efficiency wage

Higher wage paid to encourage worker productivity

extrinsic motivation

Desire to do something for its external rewards such as higher pay

general skills

Skills useful to many employers

human capital

Accumulated knowledge and skills that increase productivity

implicit bias

Judgments shaped by unconscious attribution of particular qualities to members of a group

institutional discrimination

Bias against disadvantaged groups that is embedded in laws and institutions

intrinsic motivation

Desire to do something for the enjoyment of the activity itself

job-specific skills

Skills only useful in a job with one particular employer

monopsony power

Businesses using bargaining power as a major buyer to pay lower prices including lower wages

pay-for-performance

Linking income of workers to measures of their performance. ie, commissions, piece rates, bonuses, promotions.

prejudice

Taste-based discrimination; discriminating by preference rather than reason.

signal

Action to credibly convey information that may otherwise by hard to verify

statistical discrimination

Relying on stereotypes or average characteristics of a group to make inferences

Licensing Laws

Government laws that make it illegal to work in certain occupations without meeting certain requirements

Marginal revenue product

Measures marginal revenue from hiring an additional worker

Marginal Product of Labor

Extra production from hiring an extra worker

Rational Rule for Employers

Hire an additional worker if the marginal revenue product exceeds the wage paid

accounting profit

Total revenue minus explicit costs

Economic Profit

Total revenue minus explicit financial costs minus opportunity costs

average cost

Cost per unit, calculated as your firm’s total costs divided by the quantity produced

average revenue

Revenue per unit, calculated as total revenue divided by the quantity supplied

barriers to entry

Obstacles making it difficult for new suppliers to enter a market

free entry

When there are no factors making it particularly difficult or costly for a business to enter or exit an industry

long run

Production capacity and competitors can change

profit margin

Profits per unit sold; profit margin = average revenue minus average cost

Rational Rule for Entry

Enter a market if you expect to earn a positive economic profit, which occurs when the price exceeds your average cost

Rational Rule for Exit

Exit the market if you expect to earn a negative economic profit, which occurs if the price is less than your average costs

short run

The horizon over which the production capacity, and the number and type of competitors you face cannot change

switching costs

Impediment making it costly for consumers to switch to buying from another business

bundling

Selling different goods together as a package

group pricing

Price discrimination by charging different prices to different groups of people

hurdle method

Tweak incentives in just the right way to induce customers to sort themselves into high and low reservation prices

perfect price discrimination

Selling product at each customer’s reservation price

price discrimination

Selling the same product at different prices hoping to charge each individual the maximum price they are willing to pay

quantity discount

When the per-unit price is lower when you purchase a larger quantity

reservation price

Maximum price a customer will pay for a product