Essay on Economics Vocab 2

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Chapter 13:
Monopolistic Competition: characterized by (1) a relatively large number of sellers (2) differentiated products (often by heavy advertising) (3) easy entry to and exit from the industry
Product Differentiation: a strategy in which one firm’s product is distinguished from competing products by means of its design
Nonprice Competition : competition based on distinguished one’s product by means of advertising the distinguished product to consumers
Four-firm concentration ratio: the percentage of total industry sales accounted for by the top four firms in an industry
Herfindahl index: measure of the concentration and competitiveness of an industry; calculated as the same of the squared percentage market shares of the individual firms of the industry
Excess capacity: plant resources that are underused when imperfectly competitive firms produce less output than that associated with achieving minimum average cost
Oligopoly: the market condition that exists when there are a few sellers, as a result of which they greatly influence price and other market factors
Homogeneous oligopoly: an oligopoly in which firms produce a standardized product
Differentiated oligopoly: an oligopoly in which firms produce a differentiated product
Strategic behavior: self-interested economic actions that take into account the expected reactions of others
Mutual interdependence: a situation in which a change in price strategy by one firm will affect the sales and profits of another firm. Any firm that makes change expects its rivals to react to the change
Interindustry competition: the competition for sales between the products of one industry and the products of another industry Import competition: the competition that domestic firms encounter from the products and the services of foreign producers
Game theory: study of how people behave in strategic
Collusion: a situation in which firms act together and in agreement to fix prices, divide a market, or otherwise restrict competition
Kinked-demand curve: a demand curve that has a flatter slope above the current price than below the current price
Price war: successive, competitive and continued decreases in which the prices charged by the firms in an oligopolistic industry the war ends when the price decrease ceases
Cartel: a formal agreement among firms (or countries) in an industry to set the price of a product and establish the outputs of the individual firms (or countries) or to divide the market for the product geographically
Price leadership: an informal method that firms in an oligopoly may employ to set the price of their product: one firm (leader) is the first to announce a change in price; and the other firms (followers) soon announce identical or similar changes

Chapter 14:
Derived Demand: Demand for a resource that depends on the demand for the products it helps to produce
Marginal Product (MP): the additional output produced when 1 additional unit of resource is employed (the quantity of all other resources employed remaining constant); equal to the change in the total product divided by the change in the quantity of a resource employed.
Marginal Revenue Product (MRP): the change in a firm’s total revenue when it employs 1 additional unit of resource (the quantity of all other resources employed remaining constant); equal to the change in total revenue divided by the change in the quantity of the resource employed
Marginal Resource Cost (MRC): the amount by which the total cost of employing a resource increases when a firm employs 1 additional unit of the resource (the quantity of all other resources employed remained constant); equal to the change in the total cost of the resource divided by the change in the quantity of the resource employed
MRP=MRC Rule: the principle that to maximize its profit (or to minimize losses), a firm should employ the quantity of a resource at which MRP=MRC, the latter being the wage rate in the purely competitive labor market
Substitution…