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Key Concepts (5) - Coggle Diagram
Key Concepts (5)
Chapter 8
Nash equilibrium
A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else
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Excess supply
A situation in which the quantity of a good supplied is greater than the quantity demanded at the current price
Marginal cost
The effect on total cost of producing one additional unit of output. It corresponds to the slope of the total cost function at each point
Supply curve
The curve that shows the number of units of output that would be produced at any given price. For a market, it shows the total quantity that all firms together would produce at any given price
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Reservation price
The lowest price at which someone is willing to sell a good (keeping the good is the potential seller's reservation option)
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Equilibrium
A model outcome that is self-perpetuating. In this case, something of interest does not change unless an outside or external force is introduced that alters the model's description of the situation
Willingness to pay (WTP)
An indicator of how much a person values a good, measured by the maximum amount he or she would pay to acquire a unit of the good
Price-taker
Characteristic of producers and consumers who cannot benefit by offering or asking any price other than the market price in the equilibrium of a competitive market. They have no power to influence the market price
Excess demand
A situation in which the quantity of a good demanded is greater than the quantity supplied at the current price.
Competitive equilibrium
A market outcome in which all buyers and sellers are price-takers, and at the prevailing market price, the quantity supplied is equal to the quantity demanded
Chapter 8
Costs of entry
Startup costs that would be incurred when a seller enters the marker or an industry. Those would usually include the cost of acquiring and equipping new premises, research and development, the necessary patents, and the cost of finding and hiring staff
Tax incidence
The effect of a tax on the welfare of buyers, sellers, or both
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Perfect competition
A hypothetical market in which:
- The good or service being exchanged is homogeneous (it does not differ from one seller to another)
- There are large numbers of potential buyers and sellers of the good, each acting independently of the others
- Buyers and sellers can readily know the prices at which other buyers and sellers are exchanging the good
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Willingness to pay (WTP)
An indicator of how much a person values a good, measured by the maximum amount he or she would pay to acquire a unit of the good
Law of one price
Holds when a good is traded at the same price across all buyers and sellers. If a good were sold at different prices in different places, a trader could buy it cheaply inn one place and sell it at a higher price in another
Pareto efficient
An allocation with the property that there is no alternative technically feasible allocation in which at least one person would be better off, and nobody worse off
Gains from exchange
The benefits that each party gains from a transaction compared to how they would have fared without the exchange. Also known as gains from trade
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Public good
A good for which use by one person does not reduce its availability to others. Also known as non-rival good
Price-taking firm
A price taking firm maximizes profit by choosing a quantity where the marginal cost is equal to the market price (MC=P) and selling at the market price P