Competitive markets and perfect competition

HideShow resource information
Price taker
a firm has to accept the price ruling in the market
1 of 48
all products are the same irrespective of who makes them
2 of 48
Allocative efficiency
the optimum allocation of scarce resources that best accords with the consumers' pattern of demand
3 of 48
Optimum output
the (optimum) combination of fixed and variable factors that minimise ATC
4 of 48
static efficiency
efficiency at a point in time - includes allocative and productive efficiency
5 of 48
dynamic efficiency
efficiency over time - new products, techniques and processes which increases economic growth
6 of 48
Structural performance and conduct model
individual performance depends ultimately on the industry structure where the variables in the model are structure, conduct and performance
7 of 48
Barriers to entry
obstacles that stop new firms entering a market
8 of 48
sometimes called organisational slack, not reducing costs to their lowest level - the gap between the actual and lowest possible cost
9 of 48
Patent laws
a grant of temporary monopoly rights over a new product
10 of 48
ownership of rights, e.g. to a book, law against copying the book
11 of 48
taking a firm/ industry into public ownership - ownership by the state
12 of 48
existing firms in the industry
13 of 48
limit pricing
setting a price so low that other firms will not enter the industry
14 of 48
sunk costs
irretrievable costs that occur when a firm exits an industry
15 of 48
legal monopoly
a firm with 25% or more of the market share
16 of 48
product differentiation
a way of distinguishing a product from that of competitors
17 of 48
Marginal cost pricing
setting price at the level of marginal cost
18 of 48
Average cost pricing
setting price at the level of average cost
19 of 48
Dead-weight loss
reduction in consumer and producer surplus when output is restricted to less than the optimal level
20 of 48
Price discrimination
where an identical g/s is sold to different customers at different prices for no reasons not associated with costs
21 of 48
first degree price discimination
when the discriminating firm can charge a separate price to each individual customer
22 of 48
Second degree price discrimination
when the discriminating firm can charge a separate price to different groups of customer
23 of 48
third degree price discrimination
when the discriminating firm can charge a different price in each country
24 of 48
where a few large firms have the majority of the market share
25 of 48
Concentration ratio
the proportion of the market share held by the dominant firms
26 of 48
predatory pricing
setting a price that may bankrupt a competitor firm in order to try to take it over
27 of 48
combining with other firms
28 of 48
where actions by one firm will have an effect on the sales and revenue of other large firms in the market
29 of 48
price war
where firms competitively lower prices to increase their market share
30 of 48
Reactive behaviour
the actions taken by firms in response to a change in behaviour of a competitor
31 of 48
Kinked demand curve
a theoretical approach that endevours to analyse the reasons for price stability in oligopoly
32 of 48
brand loyalty
a measure indicating the degree to which consumers will purchase a firm's product rather than a competing firms products
33 of 48
discontinuous marginal revenue curve
region over which a change in marginal costs will not lead to a change in the firm's price and output levels
34 of 48
game theory
an analysis of how game players react to changing circumstances and plan their response
35 of 48
zero sum game
where a gain by one player is matched by a loss by another player
36 of 48
risk averse
where one party does not take any action that might promote retaliatory activity by another party
37 of 48
where firms cooporate in their pricing and output policies
38 of 48
Prisoner's Dilemma
where prisoners both choose the worst option
39 of 48
Nash equilibrium
where the optimum strategy is to maintain current behaviour
40 of 48
restrictive agreements
where firms collude to indulge in anti-competitive policy
41 of 48
joint profits
where firms agree to maximise shared rather than individual profits
42 of 48
a group of firms working together
43 of 48
price leader
a firm that establishes the market price that all other firms in the agreement follow
44 of 48
barometric price leadership
a firm whose price changes are accepted as they are clever at interpreting market conditions
45 of 48
parallel pricing
where firms charge identical prices
46 of 48
Tacit collusion
where firms have reached an agreement as to each other's behaviour as a result of repeated observations over time
47 of 48
menu costs
the time and money spent by firms in changing their prices in line with inflation
48 of 48

Other cards in this set

Card 2




all products are the same irrespective of who makes them

Card 3


Allocative efficiency


Preview of the front of card 3

Card 4


Optimum output


Preview of the front of card 4

Card 5


static efficiency


Preview of the front of card 5
View more cards


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Competitive markets resources »