Economics Unit 2 (Ch. 2-4) – Flashcards
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Market
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anything that brings buyers (demanders) and sellers (suppliers) together
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Lower Prices and Higher Quality Products
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competition in markets are beneficial to buyers and results in
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Large Number of Sellers
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A competitive market is one with a
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4 Types of Market Structures
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1) Perfect Competition 2) Monopolistic Competition 3) Oligopoly 4) Monopoly
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Criteria by which an industry is categorized as a specific market structure:
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1) Number of sellers (firms) in the market 2) Seller's "Market Share" 3) Product Differentiation 4) Ease of Entry to the Market
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Perfect Competition
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Most Competitive
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Large
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Number of sellers in the market (Perfect Competition)
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Supply or Price (little market share)
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No one seller has much influence over market... (Perfect Competition)
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Brand Identity
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identical products (Perfect Competition)
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No barriers
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to entry or exit of market (Perfect Competition)
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Examples of Perfect Competition
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Stock Market, Agricultural Goods, Commodities, Financial Investment, Labor
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Many Sellers
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In the market (Monopolistic Competition)
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No One Seller
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has influence over market supply (Monopolistic Competition)
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Limited
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influence over price (Monopolistic Competition)
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Sellers attempt to gain greater market share through
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product differentiation by branding and advertising (Monopolistic Competition)
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Low Barriers
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to entry or exit the market (Monopolistic Competition)
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Examples of (Monopolistic Competition)
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Restaurants, Clothing, Stores, Hygiene Products, etc.
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Branding solves the problem of
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imperfect information and proves trust in a complex economy
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Branding allows sellers to
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charge higher prices for a product that is very similar to all others on the market
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Example of Branding
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over the counter medication
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Only a few sellers
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dominate the entire market (Oligopoly)
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Sellers have
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significant influence over market supply and price (high concentration of market share) (Oligopoly)
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Product differentiation varies by
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industry (Oligopoly)
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Branding
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is common (Oligopoly)
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High Barriers
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to entry and exit of market (Oligopoly)
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Examples of Oligopoly
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soft drinks, airlines, cell phone carriers, oil companies, etc.
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Price Discrimination (definition)
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different prices for the same products or services
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Price Discrimination
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is possible in markets with few sellers
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Monopoly
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only one seller dominates entire industry
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The firm has
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complete control over supply and price in the market (Monopoly)
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No substitutes
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exist for the product (Monopoly)
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Highest barriers
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to enter the market (Monopoly)
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Natural Monopoly
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efficient production by only a single supplier
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example of natural monopoly
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FPL
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Additional producers in a market would be (natural monopoly)
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impractical
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Geographic Monopoly
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Businesses in small towns and isolated locations that may sometimes find themselves without any local competition
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Examples of geographic monopoly
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the gas station on Alligator Alley
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Patent
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exclusive rights for 20 years
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Copyright
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lifetime + 50 years
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Government Operated Monopoly
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owned and operated by the government
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Example of a Government Operated Monopoly
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the DMV
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Supply and Demand
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the behavior of buyers and sellers as they interact with one another in markets
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Buyers
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determine demand
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Sellers
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determine supply
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Demand
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the desire, ability, and willingness to pay for a good or service
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Demand determines
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"WHAT" to produce in a market economy
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Sellers respond
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to consumer demand
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Law of Demand
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an inverse relationship that exists between "price" and "quantity demanded"
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Price Up
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Quantity Demanded Down
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Price Down
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Quantity Demanded Up
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Price is
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Independent Variable
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Quantity Demanded is
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Dependent Variable
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Consumers respond to changes in price with
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changes in quantity demanded
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Law of Diminishing Materials
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our utility diminishes with each additional unit of product we consume
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Consumers will only buy larger quantities if
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price is reduced
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The Income Effect
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when prices are reduced, individuals have more money and therefore will buy larger quantities
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The Substitute Effect
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when the price of a good increases, individuals will buy less expensive substitutes instead
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Market Demand
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total demand of all buyers in the market
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Market Demand is Calculated by
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the sum of all individual demand curves for a particular good or service.
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Economists only study
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market demand
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A change in Quantity Demanded
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a change in the quantity of a good demanded in response to a change in price and is illustrated as a movement along the demand curve from one point to another
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Change in Demand
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shift of the entire demand curve in response to factors other than price and occurs when consumers are willing to buy more or less of a product at any possible market price
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Non-Price Determinants of Demand
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-Changes in consumer income -Changes in consumer taste -Price of substitutes -Price of complements -Future expectations -Number of consumers
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Change in Consumer Income
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Income Up, Demand Up Income Down, Demand Down
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Change in Consumer Tastes
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advertising, news reports, fashion trends, or changes in season can increase or decrease demand at any possible price
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Substitutes
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are the different goods that fulfill the same want or need
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Examples of Substitutes
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Butter and Margarine Price of butter goes up. demand for margarine goes up
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Complements
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are two different goods used together to satisfy a want or a need
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Example of Complements
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Milk and Cereal As the price of milk increases, the demand for cereal decreases
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Consumer Expectations about the future
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influence the demand for various products
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Examples of Changes in Consumer Expectations
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Expectation of price increase tomorrow = more demand today (belief) Expectation for a hurricane tomorrow = increase in demand for food, bottled water, candles, batteries, etc.
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Number of Consumers
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population growth or expansion to new markets increases demand
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As the number of consumers go up
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the demands goes up
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Supply
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the quantity of a product sellers would willing and able to offer for sale at various possible market prices
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The Facts #1
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The willingness and ability of sellers to offer their goods/services for sale diminished at lower prices
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The Facts #2
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In a competitive market, there will be more sellers, and therefore a garter quantity, at higher prices than lower ones
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The Facts #3
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Sellers will only be willing and able to offer a good/service for sale if the market prices exceeds the cost of production
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Law of Supply
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a direct relationship exists between price and quantity supplied
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Price goes up
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Quantity goes up
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Price goes down
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Quantity goes down
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Price is an
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Independent Variable
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Quantity Supplied is a
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Dependent Variable
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Price and Supply
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sellers respond to changes in price with changes in quantity supplied
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Market Supply
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the total quantities offered for sale at various prices by all sellers in a given market
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A Change in "Quantity Supplied"
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The change amount offered for sale in response to a change in price
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A Change in "Quantity Supplied" is illustrated as
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a movement along the supply curve from one point to another
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Change in Supply is illustrated by
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a shifting of the supply curve in response to factors other than the price
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Change in Supply occurs when
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sellers are willing to offer more or less of a product for sale at all possible market prices
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The "Golden Rule"- Supply and Production Costs
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-Anything that increases production costs will decrease the supply of a product at all possible market prices -Anything that decreases production costs will increase the supply of a product at all possible market prices
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Non-Price Determinants of Supply
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-Resource Prices -Productivity -Technology -Taxes -Subsidies -Government Regulations -Future Expectations -Number of Sellers in the Market
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Resource Prices
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the cost of inputs as materials, labor, shipping, etc.
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Resource Prices goes Up
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Supply goes down
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Resource Prices goes Down
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Supply goes up
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Productivity
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increases when more output can be derived from the same number of inputs
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Productivity Goes Up
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Supply Goes Up
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Productivity Goes Down
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Supply goes down
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Technology
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the machinery, production methods, software, etc.
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Technology Goes up
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Supply Goes up
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Taxes
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a cost to sellers
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Taxes go Up
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Supply goes down
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Taxes go down
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Supply goes up
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Subsidy
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a government payment to a seller
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Subsidy goes up
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Supply goes up
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Subsidy goes down
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supply goes down
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Government Regulations
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greater _____ of industry result in higher production costs for sellers
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Regulations go up
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supply goes down
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regulations go down
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supply goes up
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Price Expectations
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expectations about future prices change the supply in the market today
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Future Price Expectation goes up
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Supply today goes down
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Future Price Expectation goes down
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Supply today goes up
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Number of Sellers
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as sellers enter to leave the market, the market supply of a product fluctuates
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# of sellers goes up
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supply goes up
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# of sellers goes down
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supply goes down
