What's it: Elasticity of demand measures the responsiveness of a product's demand to changes in determining factors such as its price (own-price), the price of other goods, and income. To calculate this, you divide the percentage change in
Microeconomics
Deadweight Loss: How to Calculate, Example
What's it: Deadweight loss is the loss of surplus by producers or consumers because the market is in disequilibrium. These losses reduce the economic surplus (social welfare) because it is not captured by either party transacting in the market
Imperfect Competition: Characteristics, Types
What's it: Imperfect competition is a market structure in which sellers or buyers have market power over prices, which prevents the market from operating under perfect competition. Because they have market power, market participants are often in
Duopoly: Examples, Characteristics, Types, Implications
What's it: Duopoly is a market structure in which only two sellers (producers). This is the basic form of oligopoly competition. The two players serve multiple buyers and sell competing goods and services.In this market, players have a high
Market Power: Determining Factors, Effects, How to Measure
What's it: Market power is the firm's ability to influence its products' prices in the market. Market power enables firms to charge a higher price than the equilibrium price in a competitive market.We call companies having market power as
Conspicuous Consumption: Meaning, Reasons, Importance
What's it: Conspicuous consumption refers to consumption expenditure not to maximize basic utility but to give others an impression. Long story short, people buy products because they want to show off their wealth and social status.In
Government Intervention: Examples, Reasons, and Impacts
What's it: Government intervention refers to the government's deliberate actions to influence resource allocation and market mechanisms. It can take many forms, from regulations, taxes, subsidies, to monetary and fiscal policy. In some cases, the
Price Taker: Meaning, Characteristics, and Examples
What's it: A price taker refers to a firm that cannot influence market prices and can only set an output price at the market price. All firms in perfect competition are price taker.Conversely, in imperfectly competitive markets, some firms
Strategic Entry Barrier: Concept, Types, Examples
What's it: Strategic entry barrier is actions taken by existing companies (incumbents) to deter new players from entering their market. It can take various forms, such as limit pricing, product differentiation, and loyalty schemes.Another term
Diseconomies of Scale: Types, and Causes
What's it: Diseconomies of scale are the economic disadvantages when a firm increases its production. Instead of lowering average costs, increasing output results in higher average costs.It usually occurs when the company has reached the minimum
Barriers to Entry: Types, and Impacts on Competition
What's it: Barrier to entry is an obstacle that prevents or minimizes the opportunities for a new company to enter a market. A barrier arises because it is deliberately created by existing companies (incumbents) through predatory pricing and
Herfindahl-Hirschman Index: Concept, How to Calculate, Pros and Cons
What's it: Herfindahl-Hirschman Index (HHI) is a measure of market concentration. You compute it by summing the squares of each firm's market share in the industry. This is an alternative to the n-firm concentration ratio.This index is important