Microeconomics chapters 10, 11, and 12
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
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| monopoly | a market in which a single firm sells a product that does not have any close substitutes
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| market power | the ability of a firm to affect the price of its product
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| barrier to entry | something that prevents firms from entering a profitable market
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| patent | the exclusive right to sell a new good for some period of time
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| network externalities | the value of a product to a consumer increases with the number of other consumers who use it
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| natural monopoly | a market in which the economies of scale in production are so large that only a single large firm can earn a profit
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| deadweight loss from monopoly | a measure of the inefficiency from monopoly; equal to the decrease in the market surplus
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| rent seeking | the process of using public policy to gain economic profit
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| price discrimination | the practice of selling a good at different prices to different consumers
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| monopolistic competition | a market served by many firms that sell slightly different products
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| product differentiation | the process used by firms to distinguish their products from the products of competing firms
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| oligopoly | a market served by a few firms
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| game theory | the study of decision making in strategic situations
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| concentration ratio | the percentage of the market output produced by the largest firms
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| duopoly | a market with two firms
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| cartel | a group of firms that act in unison, coordinating their price and quantity decisions
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| price-fixing | an arrangement in which firms conspire to fix prices
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| game tree | a graphical representation of the consequences of different actions in a strategic setting
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| dominant strategy | an action that is the best choice for a player, no matter what the other player does
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| duopolists' dilemma | a situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price
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| Nash equilibrium | an outcome of a game in which each player is doing the best he or she can, given the action of the other players
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| low-price guarantee | a promise to match a lower price of a competitor
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| grim-trigger strategy | a strategy where a firm responds to underpricing by choosing a price so low that each firm makes zero economic profit
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| tit-for-tat | a strategy where one firm chooses whatever price the other firm chose in the preceding period
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| price leadership | a system under which one firm in an oligopoly takes the lead in setting prices
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| kinked demand curve model | a model in which firms in an oligopoly match price cuts by other firms, but do not match price hikes
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| payoff matrix | a matrix or table that shows, for each possible outcome of a game, the consequences for each player
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| limit pricing | the strategy of reducing the price to deter entry
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| contestable market | a market with low entry and exit costs
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| marginal principle | increase the level of an activity as long as its marginal benefit exceeds its marginal cost. Choose the level at which the marginal benefit equals the marginal cost
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| profit formula | profit= total revenue-total cost
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| A firm has an opportunity for price discrimination if three conditions are met: | 1. Market power. 2. Different consumer groups. 3. Resale is not possible.
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