Untitled Flashcards Set

Price-Taking Firm: A firm that cannot influence the market price of its product and must accept the prevailing price.

• Monopolist: A firm that is the sole producer of a good or service with no close substitutes, giving it the power to set prices.

• Price Taker: A buyer or seller that has no control over the market price and must accept the price set by the market.

• Perfectly Competitive Market: A market with many buyers and sellers, identical products, no barriers to entry or exit, and perfect information.

• Perfectly Competitive Industry: An industry where all firms are price takers and produce homogeneous goods.

• Free Entry and Exit: The condition where firms can freely enter or exit the market without significant barriers.

• Natural Monopoly: A market where a single firm can produce at a lower cost than multiple firms due to economies of scale.

• Oligopoly: A market structure with a few large firms dominating the market, often interdependent.

• HHI (Herfindahl-Hirschman Index): A measure of market concentration calculated by summing the squares of each firm’s market share.

• Monopolistic Competition: A market structure with many firms producing similar but differentiated products.

• Marginal Revenue: The additional revenue generated from selling one more unit of a good or service.

• Marginal Revenue Curve: A curve showing how marginal revenue changes as output increases.

• Interdependent: A situation in which firms’ decisions affect each other’s outcomes.

• Duopoly: A market with only two firms.

• Cartel: A group of firms that collude to limit output and increase prices, acting like a monopoly.

• Collusion: An agreement among firms to limit competition.

• Noncooperative Behavior: Firms acting in their own self-interest rather than cooperating.

• Game Theory: The study of strategic decision-making.

• Payoff Matrix: A table showing the outcomes of different strategies in a game.

• Prisoner’s Dilemma: A game where individual rationality leads to a worse collective outcome.

• Dominant Strategy: A strategy that yields the best payoff regardless of the opponent’s actions.

• Nash Equilibrium: A situation where no player can improve their outcome by unilaterally changing their strategy.

• Tit for Tat: A strategy where a player replicates the opponent’s previous move to encourage cooperation.

• Tacit Collusion: Firms indirectly coordinate actions without explicit agreements.

• Antitrust Policy: Laws and regulations designed to prevent anti-competitive behavior and promote competition.

• Product Differentiation in Oligopoly: Firms make products slightly different to reduce competition.

• Marginal Social Cost: The total cost to society of producing an additional unit of a good, including external costs.

• Marginal Social Benefit: The total benefit to society from consuming an additional unit of a good, including external benefits.

• External Cost: A cost incurred by third parties due to production or consumption of a good.

• Externalities: Side effects of production or consumption that affect third parties.

• Negative Externalities: Costs imposed on others (e.g., pollution).

• Positive Externalities: Benefits conferred on others (e.g., education).

• Coase Theorem: Suggests that private bargaining can resolve externalities if property rights are well-defined and transaction costs are low.

• Emissions Tax: A tax on the amount of pollution emitted to internalize external costs.

• Pigouvian Tax: A tax designed to correct negative externalities.

• Tradeable Emissions Permits: Permits that allow a firm to emit a certain amount of pollution, which can be traded in a market.

• Pigouvian Subsidy: A subsidy designed to encourage activities with positive externalities.

• Technology Spillover: Positive externalities from technological innovation.

• Network Externalities: Benefits that increase as more people use a good or service.

• Positive Feedback: A situation where a product becomes more valuable as its adoption increases.

• Excludable: A good is excludable if people can be prevented from using it.

• Nonrival in Consumption: One person’s consumption does not reduce the availability for others.

• Private Good: A good that is rival in consumption and excludable.

• Nonexcludable: A good that people cannot be prevented from using.

• Public Goods: Nonexcludable and nonrival in consumption (e.g., public sewer system).

• Common Resources: Nonexcludable but rival in consumption (e.g., fish stocks).

• Artificially Scarce Goods: Excludable but nonrival in consumption (e.g., on-demand TV).

• Free Rider Problem: When people benefit from a good without paying for it.

• Overuse: Excessive use of a common resource, leading to depletion.

• Government Transfers: Payments by the government to individuals without requiring goods or services in return.

• Poverty Programs: Programs designed to reduce poverty.

• Social Insurance Programs: Programs providing protection against economic risks.

• Means-Tested: Eligibility depends on income level.

• In Kind: Benefits provided as goods or services rather than cash.

• Medicare vs. Medicaid: Medicare provides healthcare for the elderly; Medicaid provides for low-income individuals.

• Gini Coefficient: A measure of income inequality.

• Marginal Product of Labor (MPL): The additional output produced by one more unit of labor.

• Value of the Marginal Product (VMPL): Price times the marginal product of labor.

• Shifters of the Factor Market Curve:

  • Change in price of goods.

  • Change in supply of other factors.

  • Change in technology.

• Physical Capital: Machinery, buildings, and tools used in production.

• Human Capital: Skills and knowledge of workers.

• Land: Natural resources used in production.

• Labor: Human effort used in production.

• Marginal Productivity Theorem: Firms hire until the marginal product equals the marginal cost of labor.

• Compensation Differentials: Wage differences based on job characteristics.

• Work vs. Leisure: Tradeoff between earning income and enjoying free time.

• Individual Labor Supply Curve: Shows how an individual’s labor supply changes with wages.

• Shift of Labor Supply Curve:

  • Change in preferences or social norms.

  • Change in population.

  • Change in opportunities.

  • Change in wealth.

• Marginal Revenue Product of Labor (MRPL): MPL times marginal revenue.

• Monopsony: A market with a single buyer of labor.

• Cost Minimization Rule: Firms hire factors in a way that minimizes cost for a given output.

• Private Information: Information that one party in a transaction knows but the other does not.