Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as whole, which is studied in macroeconomics.
A monopoly is as described by Irving Fischer, a market with the "absence of competition", creating a situation where a specific person or enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterized by a lack of economic competition to produce the good or service, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with a decrease in social surplus. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.
Monopolistic competition is a type of imperfect competition such that there are many producers competing against each other, but selling products that are differentiated from one another and hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. If this happens in the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933). Joan Robinson published a book The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition. Further work on monopolistic competition was undertaken by Dixit and Stiglitz who created the Dixit-Stiglitz model which has proved applicable used in the sub fields of international trade theory, macroeconomics and economic geography.
In economics, specifically general equilibrium theory, a perfect market, also known as an atomistic market, is defined by several idealizing conditions, collectively called perfect competition, or atomistic competition. In theoretical models where conditions of perfect competition hold, it has been demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum.
In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market, resulting in market failure.
Deadweight loss, also known as excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced. Non-optimal production can be caused by highly concentrated wealth and income, monopoly pricing in the case of artificial scarcity, a positive or negative externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage.
This aims to be a complete article list of economics topics:
A two-part tariff (TPT) is a form of price discrimination wherein the price of a product or service is composed of two parts – a lump-sum fee as well as a per-unit charge. In general, such a pricing technique only occurs in partially or fully monopolistic markets. It is designed to enable the firm to capture more consumer surplus than it otherwise would in a non-discriminating pricing environment. Two-part tariffs may also exist in competitive markets when consumers are uncertain about their ultimate demand. Health club consumers, for example, may be uncertain about their level of future commitment to an exercise regimen. Two-part tariffs are easy to implement when connection or entrance fees can be charged along with a price per unit consumed.
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold at different prices by the same provider in different markets. Price discrimination is distinguished from product differentiation by the more substantial difference in production cost for the differently priced products involved in the latter strategy. Price differentiation essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand. For price discrimination to succeed, a firm must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc. All prices under price discrimination are higher than the equilibrium price in a perfectly-competitive market. However, some prices under price discrimination may be lower than the price charged by a single-price monopolist.
In economics, profit maximization is the short run or long run process by which a firm may determine the price, input and output levels that lead to the highest profit. Neoclassical economics, currently the mainstream approach to microeconomics, usually models the firm as maximizing profit.
In economics, a monopoly is a firm that lacks any viable competition, and is the sole producer of the industry's product. In a normal competitive situation, no firm can charge a price that is significantly higher than the marginal (economic) cost of producing the product. If any firm doing business within a competitive situation tries to raise prices significantly higher than the marginal cost of producing the product, it will lose all of its customers to either other existing firms that charge lower prices, or to a new firm that will find it profitable to use a lower price to take customers away from the firm charging the higher price. But since the monopoly firm does not have to worry about losing customers to competitors, it can set a monopoly price that is significantly higher than its marginal cost, allowing it to have an economic profit that is significantly higher than the normal profit that is typically found in a perfectly competitive industry. The high economic profit obtained by a monopoly firm is referred to as monopoly profit.
Allocative efficiency is a state of the economy in which production is aligned with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.
In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service to increase economic profit. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing sales. This indicates that the magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output. Such propensities contradict perfectly competitive markets, where market participants have no market power, P = MC and firms earn zero economic profit. Market participants in perfectly competitive markets are consequently referred to as 'price takers', whereas market participants that exhibit market power are referred to as 'price makers' or 'price setters'.
Marginal revenue is a central concept in microeconomics that describes the additional total revenue generated by increasing product sales by 1 unit. To derive the value of marginal revenue, it is required to examine the difference between the aggregate benefits a firm received from the quantity of a good and service produced last period and the current period with one extra unit increase in the rate of production. Marginal revenue is a fundamental tool for economic decision making within a firm's setting, together with marginal cost to be considered.
In economics, a durable good or a hard good or consumer durable is a good that does not quickly wear out or, more specifically, one that yields utility over time rather than being completely consumed in one use. Items like bricks could be considered perfectly durable goods because they should theoretically never wear out. Highly durable goods such as refrigerators or cars usually continue to be useful for several years of use, so durable goods are typically characterized by long periods between successive purchases.
In economics, competition is a scenario where different economic firms are in contention to obtain goods that are limited by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater the selection of a good is in the market, prices are typically lower for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly). According to Antoine Augustin Cournot, the definition of competition is the situation in which price does not vary with quantity, or in which the demand curve facing the firm is horizontal. The level of competition that exists within the market is dependent on a variety of factors both on the firm/ seller side; the number of firms, barriers to entry, information, and availability/ accessibility of resources. The number of buyers within the market also factors into competition with each buyer having a willingness to pay, influencing overall demand for the product in the market.
Stephen W. Salant is an economist who has done extensive research in applied microeconomics. His 1975 model of speculative attacks in the gold market was adapted by Paul Krugman and others to explain speculative attacks in foreign exchange markets. Hundreds of journal articles and books on financial speculative attacks followed.
An economic profit is the difference between the revenue a commercial entity has received from its outputs and the opportunity costs of its inputs. Unlike an accounting profit, an economic profit takes into account both a firm's implicit and explicit costs, whereas an accounting profit only relates to the explicit costs which appear on a firm's financial statements. Because it includes additional implicit costs, the economic profit usually differs from the accounting profit.
The Coase conjecture, developed first by Ronald Coase, is an argument in monopoly theory. The conjecture sets up a situation in which a monopolist sells a durable good to a market where resale is impossible and faces consumers who have different valuations. The conjecture proposes that a monopolist that does not know individuals' valuations will have to sell its product at a low price if the monopolist tries to separate consumers by offering different prices in different periods. This is because the monopoly is, in effect, in price competition with itself over several periods and the consumer with the highest valuation, if he is patient enough, can simply wait for the lowest price. Thus the monopolist will have to offer a competitive price in the first period which will be low. The conjecture holds only when there is an infinite time horizon, as otherwise a possible action for the monopolist would be to announce a very high price until the second to last period, and then sell at the static monopoly price in the last period. The monopolist could avoid this problem by committing to a stable linear pricing strategy or adopting other business strategies.
In industrial organization and in particular monopoly theory, a durapolist or durable good monopolist is a producer that manipulates the durability of its product. The term was coined by antitrust scholar Barak Orbach. The concept is used to explain how durable good manufacturers overcome the durability problem of their products and persuade consumers to purchase new goods. The concept utilizes a monopolist to simplify explanations regarding product durability.
