AP Microeconomics Unit 4

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Imperfect Competition ("**" indicates that the definition may be incorrect for varying reasons, such as being from Google or being based on context clues )

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41 Terms

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Allocative Efficiency
achieved when each type of good is produced until the benefit from another unit of the good no longer exceeds the cost of producing another unit (until MB
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Antitrust Policy
involves efforts by the government to prevent oligopolistic industries from becoming or behaving like monopolies.
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Average Total Cost
total cost divided by quantity of output produced; also known as average cost.
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Barriers to Entry
something that protects a monopolist (and allows it to persist and earn economic profits) by preventing other firms from entering the industry.
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Break-Even Price
the market price at which a price-taking firm earns zero profit; the minimum average total cost of such a firm.
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Cartel
a group of producers that agree to restrict output in order to increase prices and their joint profits.
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Collusion
when sellers cooperate to raise their joint profits.
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Concentration Ratios
measure of the percentage of industry sales accounted for by the “X” largest firms; for example, the four-firm \[blank\] or the eight-firm \[blank\].
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Dominant Strategy
a player’s best action regardless of the action taken by the other player.
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Duopoly
an oligopoly consisting of only two firms.
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Excess Capacity
when firms in a monopolistically competitive industry produce less than the output at which average total cost is minimized.
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Fair-Return Price
When price is equal to average total cost for a monopoly, enforced by the government usually
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Game Theory
the study of behavior in situations of interdependence.
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Industry Supply Curve
shows the relationship between the price of a good and the total output of the industry as a whole; also known as market supply curve.
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Interdependence
when the outcome (profit) of each firm depends on the actions of the other firms in the market.
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Long-Run Industry Supply Curve
shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.
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Marginal Cost
the change in total cost generated by producing an additional unit of output
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Marginal Revenue
the change in total revenue generated by an additional unit of output.
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Nash Equilibrium
the result when each player in a game chooses the action that maximizes his or her payoff, given the actions of other players; also called noncooperative equilibrium
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Noncooperative Behavior
when firms act in their own self-interest, ignoring the effects of their actions on each other’s profits
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Payoff
the reward received by a player in a game, such as the profit earned by an oligopolist.
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Perfect Price Discrimination
when a monopolist charges each consumer his or her willingness to pay—the maximum that the consumer is willing to pay.
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Price Discrimination
when firms charge different prices to different consumers for the same good.
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Price Effect
**a change in price and how it impacts a firm/market****
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Price Leadership
one firm sets its price first, and other firms then follow.
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Price Regulation
limits the price that a monopolist is allowed to charge.
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Price War
when tacit collusion breaks down and aggressive price competition causes prices to collapse.
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Price-Taking
When a consumer/firm has no effect on the market price of the good or service they buy/sell
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Prisoners’ Dilemma
a game based on two premises: (1) each player has an incentive to choose an action that benefits itself at the other player’s expense; and (2) when both players follow this incentive, both are worse off than if they had acted cooperatively.
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Product Differentiation
an attempt by a firm to convince buyers that its product is different from the products of other firms in the industry.
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Productive Efficiency
achieved by an economy if it produces at a point on its production possibilities curve; achieved when firms minimize the average cost of producing their goods
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Profit
The value of the difference between total revenue and costs
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Public Ownership
(of a monopoly) when a good is supplied by the government, or by a firm owned by the government, instead of by a monopolist.
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Quantity Effect
A change in quantity and how it impacts a firm/market\*\*
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Short-Run Industry Supply Curve
shows how the quantity supplied by an industry depends on the market price, given a fixed number of firms.
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Short-Run Market Equilibrium
when, in a market, quantity supplied equals quantity demanded, given a fixed number of firms.
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Shut-Down Price
the price at which a firm ceases production in the short run; equal to minimum average variable cost.
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Single-Price Monopolist
monopolist that charges all consumers the same price.
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Socially Optimal Price
price where a monopoly is allocatively efficient, enforced by a government usually
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Tacit Collusion
when firms limit production and raise prices in a way that raises each other’s profits, even though they have not made any formal agreement.
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Tit for Tat
a strategy that involves playing cooperatively at first, then doing whatever the other player did in the previous period.