Economics Market Structure

Front 1

Variable Factor

Back 1

Factor of production whose quantity can be changed within time period to change output

Front 2

Short Run

Back 2

Production period in which there is / are fixed factor(s)

Front 3

Long Run

Back 3

Production period in which there are no fixed factors

Front 4

Law of Diminishing Marginal Returns (LDMR)

Back 4

As more units of a variable factor are added to an unchanging fixed factor,the marginal product generated by adding the variable factor will eventually decrease

Front 5

Marginal Cost

Back 5

Additional cost from additional output

Front 6

Economies of Scale

Back 6

Unit costs decrease as scale of production increases

Front 7

Diseconomies of Scale

Back 7

Unit costs increase as scale of production increases

Front 8

Minimum Efficient Scale (MES)

Back 8

Occurs at where LRAC curve stops falling / lowest point of LRAC curve

Front 9

Internal Expansion

Back 9

Expanding productive capacity to enjoy internal EOS

Front 10

Horizontal Integration

Back 10

Merger of two firms at same stage of production

Front 11

Vertical Integration

Back 11

Merger of two firms at different stages of production

Front 12

Perfect Competition

Back 12

Market of many buyers and sellers of a homogeneous good

Front 13

Monopoly

Back 13

Market of only one seller of a product without substitutes (absence of
competition)

Front 14

Productive Efficiency

Back 14

Occurs when firm is able to produce an output at any point along LRAC curve
in long run or least cost at any given period

Front 15

Allocative Efficiency

Back 15

Occurs at where output level when price of good equals marginal cost of
producing it

Front 16

Natural Monopoly

Back 16

When it is cost efficient to have a single firm in the industry such that it has
lower AC (substantial EOS) over range of market demand

Front 17

Predatory Pricing

Back 17

Selling below cost price to drive out competitors

Front 18

Cartel Agreement

Back 18

among existing suppliers to keep out competitors

Front 19

X-inefficiency

Back 19

Occurs when a firm becomes complacent and suffers from inefficiency due to
lack of competition

Front 20

Price Discrimination

Back 20

Charging different prices for the same product or for different units of it
when such price differences is not because of cost differences

Front 21

1st Degree Price Discrimination

Back 21

Monopolist sells each unit to consumers at maximum price they are willing to
pay

Front 22

2nd Degree Price Discrimination

Back 22

Monopolist sets uniform price per unit for specific quantity of good and
lower price per unit for subsequent units

Front 23

3rd Degree Price Discrimination

Back 23

Monopolist charges different prices for the same commodity in different
markets

Front 24

Oligopoly

Back 24

Market where few large firms have large market share

Front 25

Monopolistic Competition

Back 25

Market where many small firms exist,each providing different products or services

Front 26

Price Rigidity

Back 26

Tendency for prevailing market prices to remain stable over a long time

Front 27

Mutual Interdependence

Back 27

Each firm affects rival firms’ decisions and are also affected by rival firms’ decisions

Front 28

Product Innovation

Back 28

Differentiation of product in consumer’s viewpoint through improvements to product

Front 29

Process Innovation

Back 29

Reducing AC without sacrificing profits through streamlining processes

Front 30

Brand Proliferation

Back 30

Firms produce many brands to saturate market,leaving no gaps for rivals

Front 31

Market Segmentation

Back 31

Segmenting market into sub-markets / market niches with different needs catered through product innovation

Front 32

Kinked Demand Curve Theory

Back 32

Explains price rigidity; TR falls when prices rise / fall as rivals will match price decreases but not price increases

Front 33

Price Wars

Back 33

Used to eliminate new competitors,when a firm lowers its price

Front 34

Collusive Oligopoly

Back 34

When there are tacit / explicit agreements among firms on operations

Front 35

Cartel Theory

Back 35

Formal arrangement by sellers to fix prices through manipulating supply to
the market

Front 36

Price Leadership Theory

Back 36

Oligopolists agree to set same price as price leader in industry,allowing price
adjustments without price wars

Front 37

Dominant Firm Price Leadership

Back 37

Others in industry follow largest producer in industry in price changes

Front 38

Barometric Firm Price
Leadership

Back 38

Others in industry follow price changes of producer most sensitive to market conditions

Front 39

Contestable Market Theory

Back 39

In a market of free entry & exit,number of firms in industry unimportant since firms always behave as if competition is very strong (no matter number of firms)

Front 40

Differentiated Product

Back 40

Product that is slightly different from and yet close substitute to product of other firms in industry

Front 41

Product Development

Back 41

Production of good with potentially high demand and different from products of rival firms or provision / improvement of service to better / differ from rivals

Front 42

Excess Capacity Theorem

Back 42

Firms inefficient in using society’s & own resources,thus not producing at socially ideal output

Front 43

Price Taker

Back 43

A firm that takes the price from the market as given