Chapter 8

• Market equilibrium: when the supply and demand graphs meet at PE (price equilibrium) and QE (Quantity equilibrium)
• What does P1, Q1, and Q2 represent?

  Excess demand

  
• What does P2, Q1, Q2 represent?

  Excess Supply

  
• positive and negative externalities refer to the impacts of a good or service on social welfare, such as pollution, wage gaps, and animal cruelty. These cannot be calculated, however, there can be negative and positive consequences for this, like, the government intervening to ensure proper environmental action is being taken care of, or share prices going up or down.
• The price mechanism is a key component to establish efficiency in a market as it effectively allocates resources according to consumer demands and business outputs. Through the price mechanism, the market can achieve price and quantity equilibrium, meaning, no extra/insufficient produce was allocated in the market based on consumer demands. This ensures no wastage/shortage in the market.
• Product market is the interaction of goods/services an consumers
• Factor market refers to all resources that aided in the production procedure, such as, land, labor, capitol, and enterprise.
• Market failure occurs when the market fails to take into account the negative externalities of a company or price rises and falls in goods/services that's unjust to consumers.
• Government intervention can aid in avoiding market failure. This can be done through:

  1. Price ceilings, when good/service price too high
  2. Price floors, when good/service price too low
  3. Taxes, negative externalities (market quantity too high)
  4. Subsidies, positive externalities (market quantity too low)
  5. Government provides good/service (merit goods)
• Types of markets: 


  Green: bigger firms, lesser competition, high barriers to entry

  Purple: smaller firms, higher competition, low/no barriers to entry

  
• No example of an economy with pure/perfect competition
• In a Monopoly:

  • The firm is the price maker
  • No close substitutes for the product
  • Large barriers to entry; however, little competition
  • Barriers to entry can be caused due to predatory pricing.
• In Monopolistic competition:

  • Large no. of small firms
  • SOME price setting power
  • close substitutes are available, bu they are never identical, since product differentiation is used to create brand loyalty.
  • Lots of competition, low barriers to entry
• Perfect competition:

  • Firms are price-takers
  • No barriers to entry, very high levels of competition
  • All good are identical
  • All firms are relatively small
  • Can never exist in real life
• Oligopolies:

  • Significant barriers to entry
  • Relatively low competition
  • firms are usually price makers
  • Little close substitutes of products, however, product differentiation is used to create brand loyalty