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Monopoly Efficiency and Deadweight Loss definitions

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  • Monopoly
    A single seller controls the market, restricts output, and sets a higher price than in competitive markets.
  • Perfect Competition
    A market structure where many sellers offer identical products, resulting in efficient output and pricing.
  • Consumer Surplus
    The difference between what buyers are willing to pay and what they actually pay, represented by areas above price and below demand.
  • Producer Surplus
    The difference between the price sellers receive and their minimum acceptable price, shown below price and above supply.
  • Deadweight Loss
    Lost economic surplus from trades that do not occur due to restricted output, illustrated by missing areas on the graph.
  • Economic Surplus
    The total benefit to society from market transactions, combining consumer and producer surplus.
  • Productive Efficiency
    Achieved when production occurs at the lowest possible cost, at the minimum of the average total cost curve.
  • Allocative Efficiency
    Occurs when production matches consumer preferences, with marginal benefit equaling marginal cost.
  • Marginal Cost
    The additional expense incurred from producing one more unit, represented by the supply curve in competition.
  • Marginal Revenue
    The extra income received from selling one more unit, guiding output decisions in monopoly.
  • Average Total Cost
    The total cost per unit, with its minimum indicating the most efficient production point.
  • Market Power
    The ability of a seller to influence price and output, characteristic of monopoly.
  • Equilibrium Price
    The market price where supply equals demand, resulting in efficient allocation in competition.
  • Efficient Quantity
    The output level where total surplus is maximized, with no deadweight loss present.
  • Supply Curve
    A graphical representation of the relationship between price and quantity offered by sellers, often aligned with marginal cost.