week 7 Flashcards
what are the conditions for perfect competition
many buyers and sellers, not one is large compared to the overall market
the outputs of different sellers are homogeneous
buyers are well informed about the offerings of competing suppliers
neither technological or legal barriers to entry exist
what is features of imperfect competition
firms can differentiate products from their rivals
many firms are price setters - have choice over their own price
have market power - have the ability to raise costs without losing all of their sales
how do the demand curves differ for perfect and imperfect competition
perfectly competitive - perfectly elastic demand curve
imperfect competition - downward sloping demand curve
what is pure monopoly
a market in which a single firm is the long seller of a unique product, polar opposite to perfect competition
what is oligopoly
a market structure in which only a few firms sell a given product
what is monopolistic competition
consists of a relatively large number of firms that sell the same product with slight differentiations
what are the features of a monopoly
many buyers, no one is large compared to the market
one seller
no close substitutes
buyers are well informed about offerings of competitive suppliers
technological or legal barriers completely block entry
what is price discrimination
where customers are charged different prices for the same good
1. the firm must be a price maker
2. the firm must be able to identify which consumer is which
3. consumers must not be able to arbitrage
what does arbitrage mean
customers resell goods for higher prices
what is first degree price descrimination
monopolist knows exactly the willingness to pay of each consumer in the market, sell each unit of output at a price just equal to the buyers maximal willingness to pay
what is second degree price discrimination
the monopolist knows that customers have different willingness to pay but cannot tell who is who, they same price schedule is offered to all buyers, but they sort themselves through self selection
what is third degree price discrimination
the monopolist does not know the consumers willingness to pay, instead the monopolist sees an observable characteristic of its consumers that is related to their willingness to pay and changes price based on these
