1. Prices/Market Structures (Chapters 6-7)
Equilibrium: The point at which quantity demanded and quantity supplied are equal
Supply
Price
Demand
Quantity

2. Prices
Disequilibrium: When supply quantity and demand quantity don't equal
Excess Demand: When the quantity supplied is less than that demanded (think Christmas crazes)
Excess Supply: When the quantity supplied is greater than the quantity demanded (Think that TJ Maxx commercial, liquidators, etc.)
Optimal output level usually is where Marginal revenue equals Marginal cost

3. Prices
Price ceiling: The level at which government regulations mandate prices cannot rise above (think “rent control”); limits supply
Price floor: The level at which government regulations ban the sale of items for less than a determined amount (farm price supports); boosts supply

4. Factors in Prices
One factor of Fixed Costs is Operating Costs, which is the price of operating a factory or facility.
Subsidies
Regulations
Taxes (excise)
Minimum wage: A price floor for labor

5. Prices
Shortage: When quantity demanded is greater than available supply
Supply shock: sudden shortage of good
Rationing: Government division of available supply of goods.
Black market: The sale of goods outside the bounds of the law. A black market can be created because of government rationing (including through copyright infringement) or outright government ban on product.

6. Copyright and Black Market
U.S. Constitution, Article I, Section 8: “Congress shall have the power to ...To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”
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7. Market Structures (Ch. 7)
Basic Rule of the Market: All producers seek a monopoly
Perfect Competition: When many producers sell the same product
Monopoly: When only one producer sells a product
Oligopoly: When a small group of producers produces a product (When they openly combine to control prices, it is called a Cartel)

8. Competition
Perfect competition: What most Americans think of when they think “Free Enterprise”
Imperfect competition: Competition in a market that meet perfect competition because it contains one or more Barriers to Entry.
Barrier to Entry: A factor that makes it difficult for a new producer to enter a market

9. Barriers to Entry
Start-up Costs: Expenses a producer must pay before entering a market
Ex: Automobile manufacturers must purchase or build huge plants and distribution channels.
What are some markets that have little or no start-up costs?
Technology: Specialized know-how

10. Monopoly Single producer in a market What can cause a monopoly?
Superior quality/invention
Government franchise or license
Copyright/patent protection or corporate franchise
Technology
Economies of scale: The more you produce, the cheaper each individual unit costs to produce (usually because of high start-up or operating costs

11. Economies of scale Price Price Price Quantity Quantity
Economies of scale in most markets
Economies of scale in natural monopolies

12. Monopolies
Natural Monopoly: A market that runs most efficiently when only one producer is in a market. (arguably a mythical concept)
Government monopoly: A monopoly created by government fiat. (most common form of monopoly)
Ex. Taunton Municipal Lighting Plant
Market power: The ability of companies to change prices in a market (in monopolies, cartels, and temporary market position)

13. Price discrimination
...is the division of customers into groups based upon how much they will pay for a good:
wholesale/retail
corporate/residential
Educational discounts
Senior citizens discounts
Children discounts
Student discounts
Faculty/staff discounts
Member discounts
etc.

14. Oligopoly When a small group of producers dominate a market
Also called a “Cartel” when the producers openly combine
Once called a “Trust” in American history
Usually an oligopoly is four or fewer firms that control percent of a market. Examples of oligopolies include:
Soda: Coke and Pepsi
Oil: OPEC
Computer operating systems: Windows/Mac