Micro Economics Flashcards
Purely Competivitve Market
- In a purely competitive market firms compete based on price, and developing a brand name is a product differentiation strategy.
- Supply chain management is a cost leadership strategy and appropriate for a firm in a purely competitive market.
- Lean manufacturingis a cost leadership strategy and appropriate for a firm in a purely competitive market.
- In a purely competitive market, there are a very large number of firms who produce a standardized product.
- To be successful in a purely competitive market, the firm needs to focus on decreasing costs.
- In a perfect market, a firm must sell the price at the equilibrium price. It will sell no products at a higher price
Oligopoly
Exits in markets or industries characterized by:
- Few sellers
- Firms sell either homogeneous product or differentiated product
- Restricted entry to the market
- Engage primarily in non price competition
Oligopolistic markets are characterized by few large competitors. Therefore, the actions of one affect others in the market, there is mutual interdependence with regard to pricing and output in an oligopolistic market.
Monopolistic Competition
The model of monopolistic competition describes a common market structurein which firms have many competitors, but each one sells a slightly different product.
- Each firm makes independent decisions about price and output, based on its product, its market, and its costs of production.
- Knowledge is widely spread between participants, but it is unlikely to be perfect
- There is freedom to enter or leave the market, as there are no major barriers to entry or exit.
- A central feature of monopolistic competition is that products are differentiated
- Monopolistically competitive firms are assumed to be profit maximisersbecause firms tend to be small with entrepreneurs actively involved in managing the business.
- There are usually a large numbers of independent firms competing in the market.
Perfect market
- In a perfect market there are a large number of buyers and sellers
- no single participant or group of participants can influence market prices.
Supply Curve
A supply curve illustrates the quantity supplied at varying prices at a point in time.
Horizontal Merger
An oligopoly is formed by the combination of firms in the same line of business, as in a horizontal merger.
An oligopoly is a market for a good or service that is dominated by a small number of firms.
Vertical Merger
A vertical merger occurs between a firm and its suppliers or customers. It would not result in domination of a product market.
Marginal Revenue
Marginal revenue is defined as the amount of additional revenue received from the sale of one additional unit.
Shift in Supply Curve
A shift in the supply curve may result from
- (1) changes in production technology
- (2) changes or expected changes in resource prices
- (3) changes in the prices of other goods
- (4) changes in taxes or subsidies
- (5) changes in the number of sellers in the market
- (6) expectations about the future price of the product.
Natural Monopoly
A natural monopoly exists when, because of economic or technical conditions, only one firm can efficiently supply the product.
Utility
Utility involves maximizing satisfaction.
Kinked Demand Curve
Demand Curve
- Slope of demand curve is always downward
- If demand for a product increases, the demand curve will shift to the right
- A shift in the demand curve to the left would be indicative of a decrease in demand for the product
Price Elasticity Coefficient
If substitutes for a good are readily available then the demand for the good is more elastic.
If demand is inelastic an increase in price will increase total revenue
Price ceilings
Price ceilings cause the price of a product to be artificially low resulting in decreased supply.
The price is below the equilibrium price
