Unit 4: Imperfect Competition

Cards (18)

  • Characteristics of Perfect Competition:
    • Large number of sellers
    • Identical products
    • Easy to enter & exit
    • Firms are price takers
  • Characteristics of Monopolistic Competition:
    • Large number of sellers
    • Differentiated products
    • Easy to enter market
    • A lot of non-price competition
    • Some control over price
  • Characteristics of an Oligopoly:
    • A few large firms
    • High barriers
    • Control over price
    • Identical or differentiated products
  • Excess Capacity: The gap between the minimum ATC output & the profit maximizing output.
  • Cartel Model: a combination of firms that acts as if it were a single firm; shared monopoly;
  • Normal profit: the amount the owners of business would have received in the next-best alternative
  • Monopoly: a market structure in which one firm makes up the entire market
  • Oligopoly: a market structure in which there are only a few firms and firms explicitly take other firms' likely response into account
  • Natural monopoly: an industry in which a single firm can produce at a lower cost than can two or more firms
  • Dominant strategy: a strategy that is preferred by a player regardless of the opponent's move
  • Game theory: formal economic reasoning applied to situations in which decisions are interdependent
  • Nash Equilibrium: a set of strategies for each player in the game in which no player can improve his or her payoff by changing strategy unilaterally
  • Barriers to Entry: anything that makes it difficult for a new firm to be formed in a market. Common ones include the government, startup cost, and economies of scale
  • Dead Weight Loss: the loss of consumer and producer surplus from a tax; measures the inefficiency caused from a market distortion, such as a tax levied on an item or a minimum price law
  • Product Differentiation: the goods that are sold aren't homogeneous, as in perfect competition; they are differentiated slightly
  • Kinked Demand Curve: theory about oligopoly and monopolistic competition, it was an initial attempt to explain sticky prices
  • Fair return price: a rational and unbiased estimate of the market price of something, using such factors as cost, supply and demand and risk characteristics
  • Socially optimal price: the price where firm does not retain any profits and all the benefits are passed onto society