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Microeconomics

Oligopoly Market Structure

In an Oligopoly market structure, there are a few interdependent firms dominate the market. They are likely to change their prices according to their competitors. For example, if Coca-Cola changes their price, Pepsi is also likely to.Examples of Oligopolies In the wireless cell phone service industry, the providers that tend to dominate the…
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Derived Demand

The term “derived demand” refers to the demand for a good or service that itself arises out of the demand for a related or intermediate good or service. Thus the dependent demand often has a notable effect on the market price of the derived good.It’s important to note the difference between regular demand and derived demand. Regular demand is…
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Monopoly Market Structure

In a Monopoly Market Structure, there is only one firm prevailing in a particular industry. However, from a regulatory view, monopoly power exists when a single firm controls 25% or more of a particular market. For example, De Beers is known to have a monopoly in the diamond industry. A Natural Monopoly Market Structure is the result of natural…
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The Substitution Effect

The Substitution Effect is the effect of a change in the relative prices of goods on consumption patterns. It is the economic idea that as either prices rise or income decreases, consumers substitute cheaper alternatives for more expensive goodsThe substitution effect is harmful to economic prosperity overall because it limits the breadth of…
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Wealth Effect

The wealth effect is the economic phenomenon in which individuals spend more when stock prices increase and, as a result, equity portfolios are increasing in value. They do so because their sense of the reliability of their wealth is increasing. Thus, increases in consumer spending are directly correlated to increases in the value of stock…
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Regulatory Capture

Regulatory capture is a failure of normal government functions in which regulatory agencies become subservient to the industries they are meant to be monitoring and regulating. In these cases, the regulatory bodies end up furthering the (typically economically-motivated) goals and concerns of special interest groups, rather than the public--so the…
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