Microeconomics Final Exam

battle of the sexes

A game in which there are two Nash equilibria and players need to coordinate for efficient outcomes. The example given is of a couple who wish to remain together, but prefer different activities.

assurance game

A game where each player has two strategies, say cooperate and not, such that the best response of each is to cooperate if the other cooperates, not if not, and the outcome from (cooperate, cooperate) is better for both than the outcome of (not, not)

monopoly

A market in which there are many buyers but only one seller.

oligopoly

A market structure in which a few large firms dominate a market; differentiated products

poverty line

An income level below which a family is defined to be in poverty is known as the:

perfect competition

An industry structure in which there are many firms, each small relative to the industry, producing identical products and in which no firm is large enough to have any control over prices. new competitors can freely enter and exit the market.

an incentive

Chantelle grows tomatoes and sells them at the farmer's market. Because the price of tomatoes rises, she is encouraged to grow and sell more. This is an example of price functioning as

sequential move games

Games in which players make moves one at a time, allowing players to view the progression of the game and to make decisions based on previous moves.

can be increased by increasing production

If Penelope, a monopolist, is producing a quantity where MC < MR, then profit:

can be increased by decreasing production

If Penelope, a monopolist, is producing a quantity where MC = P, then profit:

can be increased by decreasing production

If Penelope, a monopolist, is producing a quantity where MC > MR, then profit:

producer surplus in the market for lumber will increase.

If a country has the comparative advantage in producing lumber, then with free trade:

P > MR

If a firm faces a downward-sloping demand curve:

is maximized

If a monopolist is producing a quantity that generates MC = MR, then profit:

can be increased by increasing output

If a monopolist produces a quantity that generates MC < MR, then profit:

can be increased by increasing price

If a monopolist produces a quantity that generates MC > MR, then profit:

relative

If a poverty line is set at a third of the median household income in a country, the poverty line is based on a _____ poverty standard.

price; less than price

In a perfectly competitive market, a company's marginal revenue equals _____. For a company with market power, marginal revenue is _____.

best response

In game theory, the strategy that will give a player the highest payoff, given the strategies that the other players select.

$45; -$50

Mr. Parker sells 10 bottles of wine per week at $50 per bottle. He can sell 11 bottles per week if he lowers the price to $45 per bottle. The quantity effect of the sale of an additional bottle would be _____, whereas the price effect of the sale of an additional bottle would be _____.

perfect price discrimination

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

hurdle method

Offer lower prices only to buyers who are willing to overcome some hurdle

underproduction

One of the market failures caused by market power is

$4.50

Pamela sells 10 bottles of olive oil per week at $5 per bottle. She can sell 11 bottles per week if she lowers the price to $4.50 per bottle. The quantity effect would be:

decrease; increase; increase

The United States can produce whiskey domestically, but it can also export whiskey if the world price is higher than the domestic price. If the United States exports whiskey, consumer surplus will _____, producer surplus will _____, and total surplus will _____.

nonexcludable

The free-rider problem is most common when a good is:

overproduction

The market outcome will lead to _________ in the presence of negative externalities.

is the one who is best at the task.

The person who has an absolute advantage in a task:

above the equilibrium price.

To be binding, a price floor must set the price:

chicken

Two drivers drive towards each other. If one driver swerves, he is considered a "chicken." If a driver doesn't swerve (drives straight), he is considered the winner. Of course if neither swerves, they crash and neither wins.

pure coordination

Where it only matters that the players coordinate on an outcome, not on which outcome they coordinate.

B, C, F, G, I

Which of the following lead to an increase in demand? (Check all that apply) A. Increase in the price of a complement B. Increase in the price of a substitute C. Future prices are expected to increase D. Income decreases for a normal good E. Tastes change such that the marginal benefit of each unit decreases F. Income decreases for an inferior good G. Tastes change such that the marginal benefit of each unit increases H. Future prices are expected to decrease I. Decrease in the price of a complement J. Decrease in the price of a substitute

A

_____ are rival in consumption and nonexcludable. A. public parks B. financial services C. legal services D. private hotels

monopolistic competition

a market structure in which many companies sell products that are similar but not identical

the prisoner's dilemma

a particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial

nash equilibrium

a situation in which each firm chooses the best strategy, given the strategies chosen by other firms

price effect

after a price increase, each unit sold sells at a higher price, which tends to raise revenue

quantity effect

after a price increase, fewer units are sold, which tends to lower revenue

marginal revenue

change in revenue from selling one more unit

more competing products means greater elasticity

demand is more elastic when you are shopping in walmart than when you shop at a small convenience store because

segmenting the market

divide the overall market into segments, in which consumers have similar characteristics, so that you can charge different prices

market power

extent to which a seller can charge a higher price without losing many sales to competing businesses

inelastic

firms that have higher power will have more ______ demand curves

quantity demanded / price change

how do you calculate price elasticity of demand?

quantity demanded / change in income

how do you calculate price elasticity of income?

(price with tax - price without tax) / tax amount

how do you calculate price incidence on either consumers or producers?

quantity demanded of product A / change in price of product B

how do you calculate the cross-price elasticity of demand?

change in total revenue / change in quantity

how do you calculate the marginal revenue?

nonrival in consumption

if more than one person can consume the same unit of the good at the same time

complements

if the cross-price elasticity of demand is negative, then the goods are

substitutes

if the cross-price elasticity of demand is positive, then the goods are

tit-for-tat

involves playing cooperatively at first, then doing whatever the other player did in the previous period

strategic interactions

occurs when your best choices may depend on what others choose and when their best choices may depend on what you choose

anti-collusion laws

prevent businesses from agreeing not to compete; don't talk prices or quantities with competitors

merger laws

prevent competing businesses from combining to consolidate market power

trigger strategies

punishment strategies that choose cooperative actions until an episode of cheating triggers a period of punishment

output effect

revenue increase from selling one more unit

discount effect

revenue loss from cutting price on all units sold

grim trigger

start with cooperation; if opponent ever defects, you defect every time thereafter

price discrimination

the business practice of selling the same good at different prices to different customers

economic surplus

the difference between the marginal benefit to the buyer and the marginal cost to the seller for all units sold

deadweight loss

the economic surplus at the efficient quantity minus the economic surplus at the actual quantity

excludable

the property of a good whereby a person can be prevented from using it

rival in consumption

the same unit of the good cannot be consumed by more than one person at the same time

imperfect competition

the situation of facing at least some competitors and/or selling products that differ at least a little from those of competitors

rollback equilibrium

the strategies (complete plans of action) for each player that remain after rollback analysis has been used to prune all the branches that can be pruned

nonexcludable

the supplier cannot prevent consumption by people who do not pay for it

where the marginal cost curve crosses the demand curve

under perfect competition, how would you determine the price and quantity?

perfect competition, monopolistic competition, oligopoly, monopoly

what are the four types of market structures from lowest market power to highest market power??

1. market power 2. different types of willingness to pay 3. ability to prevent resale

what are the three requirements to price discriminate?

the yellow area

what is the deadweight loss for price floor?

B and C

what is the deadweight loss when there is a price ceiling in place?

take the quantity up to the demand curve

when you have a graph showing firm demand, marginal revenue, and marginal cost, where do you find the price?

where marginal revenue crosses marginal cost

when you have a graph showing firm demand, marginal revenue, and marginal cost, where do you find the quantity?

the area above where the marginal cost crosses both the firm demand and the marginal revenue

where do you find the deadweight loss in the marginal revenue graph?

person with the lowest opportunity cost

who has the comparative advantage?