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
Microeconomics
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
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
Fixed Cost: Meaning, Examples and Why It Matters
What's it: Fixed costs are types of costs whose value is unaffected by changes in the amount of output. When a firm increases output or decreases output, it does not change. For example, the factory machine's rental cost is $15,000,000 for 1 year.
Marginal Product: Meaning, How To Calculate It
What's it: Marginal product refers to the additional output produced when a firm uses one additional input unit, assuming the other inputs are constant. Another term for the marginal product is a marginal return or marginal productivity. How to
Economic Profit: Meaning, Formula, and Key Factors
What's it: Economic profit is the difference between revenue and total costs (implicit costs plus explicit costs). This is another measure of profit besides accounting profit. Implicit costs represent opportunity costs when a firm chooses to use a
Nash Equilibrium: Meaning, Concept and Examples
What's it: Nash equilibrium is a game theory concept that determines the optimal solution in non-cooperative competition in which each player has no incentive to change their initial strategy. John Nash, an American mathematician, put it in