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22 Cards in this Set
- Front
- Back
Perfect competition |
If there are a large number of firms producing identical products, facing identical production costs and in which there are no barriers to entry or exit. (No control over price, no market power and small portion of overall market) |
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Monopoly |
A market where one firm dominates the market for a good that has no substitutes and where significant barriers to entry exist. (Control over output and price, no competitions and no substitutes) |
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Oligopoly |
A market structure which is dominated by only a few firms, or where a product is supplied only by a few firms. The barriers to entry are high. (Possible collusion and anti competitive activity) |
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Market |
An organization or arrangement through which goods and services are exchanged |
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Price mechanism |
The process by which prices rise or fall as a result of changes in demand or supply. |
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Monopolistic competition |
A market structure with many firms and freedom of entry, but where each firm produces a differentiated product, and thus has some control over the price. Examples include restaurants, hairdressers, and bars. |
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Firm |
Individual or organization that combines the factors of production to create and sell goods and services on the market. |
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Industry |
All firms engaged in the same market activity. |
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Criteria by which an industry is categorized as a particular market structure: |
Number of firms in the industry Level of market power Differentiation between goods Ease of exit and entry |
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Demand |
The quantity of a good or service which consumers are willing to purchase at a given price over a given period of time. |
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Law of demand |
As a price of a good increases, quantity demanded decreases; inverse relationship. |
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Factors that underlie law of demand |
Income effect Substitution effect |
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Income effect |
As the price of a good decreases, the QD increases, as consumers now have more real income to spend. |
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Substitution effect |
As the price of a good decreases, consumers switch from other substitute goods because its price is comparatively lower. |
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Law of diminishing marginal utility |
As we consume additional units of something, the utility we derive from each additional unit diminishes. |
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Movement |
A change in price causes a change in QD |
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Shift |
An increase or decrease in demand at every single price will result in a shift of the demand curve due to the non price determinants of demand. |
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Non price determinants of demand |
Income: people tend to increase their spending when income improves. Price of related goods: substitute (goods that can be easily used in place of each other) vs complimentary (goods that go together). Tastes and preferences. Future prices and expectations of income (example: if we expect our income to go up we will increase our demand). Number of buyers (more consumers more demand). Demographic change (immigration) Government policy Seasonal change |
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Normal VS inferior good |
Normal good: demand increase as income increases and decreases when income does. Inferior good: demand increases as income decreases and decreases when income increases. It is the cheaper alternative to higher quality goods. (Ex: bus tickets) |
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Supply |
The quantity of a good or service which sellers are willing to supply at a given price over a given period of time. |
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Law of supply |
As price increases QS increases; direct relationship. |
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Non price determinants of supply |
Cost of production Productivity Gov intervention Price of related goods Supply shock |