Elasticity and Market Structures - Vocabulary Flashcards

Vocabulary flashcards covering key concepts from elasticity and market structures, including PED, PES, market structures, price discrimination, and related features.

Price elasticity of demand (PED)

A measure of how responsive quantity demanded is to a change in price; PED = % change in quantity demanded / % change in price.

Elastic demand

PED > 1; quantity demanded responds more than proportionally to a price change (luxury goods or close substitutes such as smartphones).

Inelastic demand

PED < 1; quantity demanded changes less than proportionally to a price change (essential goods like food).

Unitary elastic demand

PED = 1; percentage change in quantity demanded equals the percentage change in price.

Midpoint method (arc elasticity)

A method that uses the average of the initial and new price (and quantity) as the base for percent changes to compute elasticity.

Price elasticity of supply (PES)

A measure of how responsive quantity supplied is to a change in price; PES = % change in quantity supplied / % change in price.

Elastic supply

PES > 1; quantity supplied changes more than proportionally to a price change.

Inelastic supply

PES < 1; quantity supplied changes less than proportionally to a price change.

Perfect competition

A market structure with many buyers and sellers, homogeneous products, free entry and exit, price takers, and perfect information.

Monopoly

A market with a single seller, no close substitutes, high barriers to entry, and the firm is a price maker.

Price discrimination

Charging different prices to different buyers or groups for the same good or service.

First-degree price discrimination

Charging each customer the maximum price they are willing to pay (perfect price discrimination).

Second-degree price discrimination

Charging different prices based on the quantity consumed (block pricing).

Third-degree price discrimination

Charging different prices to different submarkets or consumer groups (eg by age, location).

Monopolistic competition

Many sellers offering differentiated products; free entry and exit; some non-price competition; downward-sloping demand.

Product differentiation

The process by which firms make a product appear distinct from others in the market.

Non-price competition

Competition based on product quality, branding, advertising, and service rather than price.

Oligopoly

A market structure with a few large firms that are interdependent and can influence each other’s outcomes.

Market structures

Categories of competition in an economy, typically including perfect competition, monopolistic competition, oligopoly, and monopoly.

Homogeneous product

Identical or undifferentiated product sold by all firms in a market, typical of perfect competition.

Price taker

A firm that cannot influence the market price and must accept the prevailing market price.

Free entry and exit

Low or no barriers for firms to enter or leave a market, keeping profits in check in the long run.