ECONS101 - Test 2

Monopoly

A market structure where there is no competition but high market power

Monopolistically competitive

A market structure where there is some competition and some market power

Perfectly competitive

A market structure where there is lots of competition and no market power

Contest-ability

Is how easy it is to get into and out of the market

highly contestable

Easy to get into and out off

Positive network externalities

the value of the good is determined/effected by the amount of users

Platform markets

The firm dosnt’t sell anything but rather acts as an intermediary

Multi-homing

When platform users spend their time across different platforms

Market power

the ability of the seller to have an influence over the market price

Product differentiation

making the product different from competitors to get some market power

Demand

the relationship between the quantity a consumer chooses to buy and its price

Marginal revenue

The extra revenue a firm gets from selling one more unit of a good

Profit maximisation

The quantity where MR = MC

Revenue Maximisation

The quantity where MR = 0

Sales maximization

The quantity where AR = MC

Consumer surplus

The difference between the price the consumers are willing to pay, and the price they actually pay (economic rent)

Producer surplus

The difference between the price the seller is willing to use and the amount they actually sell for

Total welfare

The combined economic surplus: Consumer surplus + Producer surplus

Elasticity

measures how responsive the change in one variable is to a change in another variable

Price elasticity of demand

The responsiveness of quantity demanded to a change in the price of the good itself

Income elasticity of demand

The responsiveness of quantity demanded to a change in consumer income

Cross price elasticity of demand

The responsiveness of the quantity demanded of one good to a change in the price of another good

Availability of substitutes

The more substitutes there are and the closer they are, the more elastic the demand will be

Proportion of income spent on good

If lots of your income is spent on the good, the demand is more elastic

Mark-up

Is the amount a firm will set above its marginal cost

price discrimination

When a firm charges different prices to different consumers while the product remains the same

First degree discrimination (personalized pricing)

Every consumer pays a different price for the good

Second degree discrimination

Firms can’t tell consumers apart but finds ways of identifying their price elasticity of demandd

Menu pricing

is a second degree discrimination where consumers are offered different options which they are able to choose from

Third degree discrimination (Group pricing)

Different prices are offered to different known groups

Bundling

Occurs when demand is heterogeneous where the firm sells two or more products together