Introduction to Microeconomics final exam

Market power

The ability of sellers to affect price

Price makers

Sellers that set the price of a good

Barriers to entry

Obstacles that prevent potential competitors from entering the market.

Patent

Government granted permission to be the sole producer and seller of a good

Copyright

Government granted rights to the creator of literary or artistic work

Price discrimination

Selling the same product at different prices to different customers

First degree price discrimination

When a seller charges each consumer the maximum price they are willing to pay

second degree price discrimination

When a seller charges different prices based on the quantity consumed

Third degree price discrimination

When a seller charges different prices to different demographic groups or market segments.

game

consists of players, actions, and outcomes

Strategy

full description of a complete action plan for all circumstances and contingency

pure strategy

a specific choice of an action from the player’s possible action in a game

Mixed strategy

a choice among two or more pure strategies according to prespecified probabilities.

Nash equilibrium

A situation where no player can benefit from changing their strategy while the other players keep theirs unchanged.

Prisoner’s dilemma

a game situation in which there is a tension between the collective interest of all of the players and the self-interest of individual players

Oligopoly

Market where there are only few firms competing

collusion

firms conspire to set the quantity they produce or the prices they charge

Cartel

A formal organization of producers who agree on anticompetitive actions

tacit collusion

when firms limit competition with one another but they do so without explicit agreement or communication

Monopolistic competition

many competing firms producing similar but slightly differentiated products

Normal good

a good for which demand increases when income increases

accounting profit

total revenue minus explicit costs

absolute advantage

The ability of an individual, firm, or country to produce more of a certain good than other competing producers, given the same amount of resources

Monopoly

an industry structure in which only one seller provides a good or service that has no close substitutes.

Marginal revenue

the change in total revenue when producing one more unit of output.

Variable cost

the cost of variable factors of production, which change along with a firm’s output.

public goods

A good that is both non-rival and non-excludable.