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Level 2

Unit 1 - Competitive Markets


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Competitive market
A situation where there are many buyers (demand) and sellers (supply)
Monopoly
One firm selling in a market
Monopoly Power
When a firm has more than 25% of the market
Demand
The quantity buyers are willing and able to buy at a given prive in a given period of time
Effective demand
The consumer must be WILLING and ABLE to buy the product
Contraction of demand
The fall in quantity demanded due to a rise in price
Extension of demand
The increase in quantity demanded due to a fall in price
Shift in demand
Demand increases due to factors other than prices - PASIFIC
Inferior Goods
Goods for which the demand falls when income rises
Complementary Goods
Goods that are in joint demand
Substitute Goods
Goods that can be used instead of each other
Price Elasticity of Demand
Measures the responsivesness of the quantity demanded to a change in price
Elastic demand
The quantity demanded changes at a greater rate than price (PED greater than 1)
Inelastic demand
The quantity demanded changes at a lesser rate than price (PED less than 1)
Unit elastic demand
Teh quantity demanded changes at the same rate as the price (PED = 1)
Total revenue
The amount of money a firm receives when selling its product - price x quantity sold
Supply
The quantity a producer is willing and able to produce at a given price level in a given period
Extension in supply
The increase in quantity supplied due to a rising price
Contraction in supply
The decrease in quantity supplied due to a falling price
Shift in supply
Supply increases due to factors other than price - PINTSWC
Productivity
Output per worker per period of time
Subsidies
A payment given to a firm, usually by the government
Price Elasticity of Supply
The responsiveness of quantity supplied to a change in price
Inelastic supply
The quantity supplied changes at a lesser rate than price (PES less than 1)
Elastic supply
The quantity supplied changes at a greater rate than price (PES greater than 1)
Equilibrium
The point where demand and supply meet - the market clearing price
Specific tax
A tax placed on a good or a service which is a specific amount of money per unit bought
Ad valorem tax
A tax placed on a good or a service which is a percentage of the price
Minimum Price
A price set above the equilibrium and the price is not allowed to go below it
Maximum Price
A price set below the equilibrium and the price is not allowed to go above it