Competitive Equilibrium II

These flashcards cover key terms and concepts related to competitive equilibrium, both in the short and long run, as well as related economic principles.

Short-run competitive equilibrium

A market condition where the number of firms and capital levels are fixed.

Long-run competitive equilibrium

A market condition where firms can enter or exit and adjust capital levels.

Market demand, D(p)

A representation of consumer optimal behavior at different price levels.

SRMC (Short-Run Marginal Cost)

The cost of producing one more unit of a good in the short run.

SRAC (Short-Run Average Cost)

The average cost of producing goods in the short run.

Zero profit condition

In long-run equilibrium, the price equals the average cost.

Shutdown price, pSD

The price at which firms will cease production in the short run.

Endogenous variables

Variables that are determined within the model, such as the number of firms and capital levels.

Exogenous shock

An unexpected event that affects supply and demand in the market.

Long-run break-even price, pe

The price that allows firms to cover all costs, including opportunity costs.

Long-run Marginal Cost, LRMC

The cost of producing one more unit of a good in the long run.

Economic rent

Earnings that exceed the minimum needed to keep a factor of production in its current use.

Variable inputs

Inputs that can be adjusted in the short run.

Fixed inputs

Inputs that cannot be changed in the short run.

Comparative statics

The analysis of changes in the equilibrium due to shifts in supply and demand.

Capital, K

The fixed resources used in production.

Number of firms, n

The quantity of firms operating in the market.

Demand shift

A change in consumer demand that affects market equilibrium.

Profit maximization

The process by which firms determine the price that will yield the highest profit.

Rent-seeking behaviour

Efforts to gain economic rent without contributing to value creation.

Symmetry assumption

The assumption that all firms have identical access to resources and technology.