IB Economics 2.11 Market Failure - Market Power Key Definitions

When a firm's average revenue is greater than its average costs.

State of the economy in which the combination and quantity of goods and services produced is aligned with the preferences of consumers and producers, maximising social surplus.

Obstacles such as legal protection, control of an essential resource, or large cost advantages that make it hard for new firms to enter a market, allowing existing firms to keep their market power.

The difference between the highest price consumers are willing and able to pay for a good or service and the actual price they end up paying.

Reductions in average production costs that arise when a firm increases its output by scaling up all its inputs in the long run.

The degree to which a firm in a market is able to control its output price.

A market structure with one single dominant firm that has substantial control over output prices. The firm sells a unique product and is protected by high barriers to entry.

A monopoly that can serve the entire market at a lower average cost than if the market were divided among smaller firms. This occurs when the total market demand is small enough for the monopoly to benefit from economies of scale, keeping its long-run average costs falling.

When a firm’s total revenue exactly covers total costs. It is the minimum level of profit that the firm needs to earn in order to remain in the market in long term.

A market structure with a large number of small firms that have no control over output prices. All firms sell an undifferentiated product and there are no barriers to entry.

The money left for a firm after the total costs have been subtracted from total revenue.

The money earned by a firm, over a period of time, from selling goods and services.