Economics Terminology: Market Power, Monopolies, and Competition, Quizzes of Microeconomics

Download Economics Terminology: Market Power, Monopolies, and Competition and more Quizzes Microeconomics in PDF only on Docsity! TERM 1 Market Power DEFINITION 1 An imperfectly competitive firms ability to raise price without losing all of the quantity demanded for its product.... Market power can cause markets to be inefficient because the equilibrium quantity is not the one where marginal cost to.. producers is equal to the marginal benefit to consumers. TERM 2 Barriers to entry DEFINITION 2 Something that prevents new firms from entering and competing in imperfectly competitive industries.... Barriers to entry have three sources: Ownership of a key resource. The government gives a single firm the exclusive right to produce some good. Costs of production make a single producer more efficient than a large number of producers. TERM 3 Rent-seeking behavior DEFINITION 3 Actions taken by households or firms to preserve positive profits. TERM 4 Monopoly DEFINITION 4 While a competitive firm is a PRICE TAKER, a MONOPOLY firm is a PRICE MAKER. A firm is considered a monopoly if..... it is the sole seller of its product...... its product does not have close substitutes..... The fundamental cause of monopoly is barriers to entry. TERM 5 Monopolistically Competitive DEFINITION 5 A common form of industry (market) structure in the United States, characterized by a large number of firms, none of which can influence market price by virtue of size alone. Some degree of market power is achieved by firms producing differentiated products. New firms can enter and established firms can exit such an industry with ease. TERM 6 The Monopolists Profit DEFINITION 6 The monopolist will receive economic profits as long as price is greater than average total cost. TERM 7 The Inefficiency of Monopoly DEFINITION 7 The monopolist produces less than the socially efficient quantity of output. TERM 8 Product differentiation DEFINITION 8 A strategy that firms use to achieve market power. Accomplished by producing products that have distinct positive identities in consumers minds. TERM 9 Two Important Antitrust Laws DEFINITION 9 Sherman Antitrust Act (1890): Reduced the market power of the large and powerful trusts of that time period.... Clayton Act (1914): Strengthened the governments powers and authorized private lawsuits. TERM 10 Oligopoly DEFINITION 10 Only a FEW sellers, each offering a SIMILAR or IDENTICAL product to the others. TERM 21 Public Good DEFINITION 21 Goods or services that bestow collective benefits on members of society. Generally, no one can be excluded from enjoying their benefits. The classic example is national defense. TERM 22 Free-rider problem DEFINITION 22 A problem intrinsic to public goods: Because people can enjoy the benefits of public goods whether they pay for them or not, they are usually unwilling to pay for them. TERM 23 Drop-in-a-bucket Problem DEFINITION 23 A problem intrinsic to public goods: The good or service is usually so costly that its provision generally does not depend on whether or not any single person pays. TERM 24 Voting Paradox DEFINITION 24 A simple demonstration of how majority-rule voting can lead to seemingly contradictory and inconsistent results. A commonly cited illustration of the kind of inconsistency described in the impossibility theorem. TERM 25 Arrow's Impossibility Theorem DEFINITION 25 A proposition demonstrated by Kenneth Arrow showing that no system of aggregating individual preferences into social decisions will always yield consistent, nonarbitrary results. TERM 26 THE SOURCES OF HOUSEHOLD INCOME DEFINITION 26 Households derive their incomes from three basic sources: (1) from wages or salaries received in exchange for labor; (2) from propertythat is, capital, land, and so forth; and (3) from government. TERM 27 Globalization DEFINITION 27 The process of increasing interdependence among countries and their citizens. TERM 28 Economic Globalization DEFINITION 28 The process of increasing economic interdependence among countries and their citizens. TERM 29 Comparative Advantage DEFINITION 29 A country enjoys a comparative advantage in the production of a good if the production of that good has a lower opportunity cost than it would have if produced in another country. TERM 30 public goods, or social goods DEFINITION 30 Goods or services that bestow collective benefits on members of society. TERM 31 Externality DEFINITION 31 A cost or a benefit resulting from some activity or transaction that is imposed or bestowed on some party outside the activity or transaction.