Competitive Markets Flashcards
Name the four types of market structures
Perfect competition market structure
Monopolistic competition market structure
Oligopoly market structure
Monopoly structure
Define a price taker
Price taker is a person or firm with no power to be able to influence the market price ex: If you buy/don’t buy something it doesn’t change the price for some else
Define perfectly competitive market
Market in which all producers and consumers of the product are price takers. There is no individual power to alter prices.
Define a free market
Consumers make demand decisions independently
Firms make supply decisions
Explain the price mechanism in the market
Shortage means prices rise and surplus means prices fall
Define the factor market
what they use to make the goods in the good market so demand and supply in that market affects the goods market
What is the law of demand and the reasons for it
when the price of a good rise, the quantity demanded will fall. Reasons: Income effect and substituion effect
Explain Income effect and substituion effect
Income: I cant afford it
Substitution: Ill buy something else (comparable to compeitors)
Determinants of demand
Tastes Number and price of substitute goods Number and price of complementary goods Income Distribution fo income Expectations
Explain the difference between change in the quantity demanded and change in demand
Change in the quantity demanded: Moving down along a curve (decrease price increase demand)
Change in demand: Whole market shift in demand and the curve itself moves
What is the law of supply and what are its reasons
When the price of a good rise, the quantity supplied will also rise Reasons: Extra unit costs absorbed more switch from less profitable goods New suppliers
Determinants of supply
Costs of production Profitability of alternative products Profitability of good in joint supply Nature/random shocks - Aims of producers - ex: Profit maximisation Expectations of producers Number of suppliers
Explain the difference between change in the quantity supplied and change in supply
Change in the quantity supplied: Moving up along a curve (increase price increase supply)
Change in supply: Whole market shift in supplying and the curve itself moves
Define equilibirum
A position from which there is no inherent tendency to move away from (demand equals supply)
