MICROECONOMICS PT2

Chapter 5-9

Allocative efficiency

When the mix of goods produced represents the mix that society most desires; the quantity where the marginal benefit to society of one more unit equals the marginal cost.

Barriers of entry

The legal, technological or market forces that may discourage or prevent potential competitors from entering a market.

Copyright

A form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music.

Deregulation 

Removing government controls over setting price and quantities in certain industries.

Intellectual property

The body of law including patents, trademarks, copyrights, and trade secret law that protects the right of inventors to produce and sell their inventions. 

Legal Monopoly

Legal prohibitions against competitions, such as a regulated monopolies and intellectual property protection. 

Monopoly

A situation in which one firm produces all of the output in a market

Natural Monopoly

Economics conditions in the industry, such as, economies of scale control of a critical resource, that limit effective competition.

Patent

Government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time.

Predatory Pricing

When an existing firm uses sharp but temporary price cuts to discourage new competition.

Trademark

An identifying symbol or name for a particulars good and can only be used by the firm that registered hat trademark.

Trade Secrets

Methods of production kept secret by the production firm.

Break-even point

Level of output where the marginal cost curve intersects the average cost curve at the minimum point of AC; if the price is at this point, the firm is earning zero economic profits.

Constant-cost industry

As demand increases, the cost of production for firms stays the same

Decreasing-cost industry

As demand increases, the cost of production for firms decreases.

Entry

The long-run process of firms entering an industry in response to industry profits.

Exit

The long-run process of firms reducing production and shutting down in response to industry losses.

Increasing-cost industry

Ad demand increases, the cost of production for firms increases.

Long-run equilibrium

Where all firms earn zero economic profits producing the output level where 
P = MR = MC and P = AC

Marginal revenue 

The additional revenue gained from selling one more unit.

Market Structure

The conditions in an industry, such as a number of sellers, how easy or difficult it is for a new firm to enter, and the types of products that are sold.

Price taker

A firm in a perfectly competitive market that must take the prevailing market price as given.

Shutdown point 

Level of output where the marginal cost curve intersects the average variable cost curve at the minimum point of AVC; if the price below this point, the firm should shut down immediately. 

Constant unitary elasticity

When a given percent change in price leads to an equal percentage change in quantity demanded or supplied.

Cross-price elasticity of demand 

The percentage change in the quantity of Good A that is demanded as result of percentage change in Good B

Elastic demand

When the elasticity of demand is greater than one, indicating a high responsiveness of quantity demanded to changes in price.

Elasticity

An economics concept that measures responsiveness of one variable