Econ Final Study Guide

Monopolistic Competition examples

Restaurants, Clothing, Housing, Hotels

Private Good

Rival and Excludable Ex. Pizza (You pay for it you get it but no one else can eat it)

Common Resources

Rival and Non-Excludable Ex. Fish (You don't pay for it and you still get it but no one else can get it.)

Perfect Price Dicrimination

They need to know your personal information

Oligopoly usually prices

below monopoly market but above monopolistic competition

Anti trust laws

regulates the conduct and organization of business corporations to promote fair competitions for the benefit of consumers

Define Cartel

A group of suppliers that try to act as if they were a monopoly

Define Oligopoly

A market that is dominated by a small number of firms ex. Laptops, cars, phones

Define Monopolistic Competitive

A market with a larger number of firms selling similar but not identical products ex. Restaurants

Total profit for a given quantity of output can be calculated as: A) Total Revenue - Total Costs B) Marginal Revenue - Marginal Cost C) Total Revenue - Marginal Revenue D) Marginal Profit + Marginal Revenue

A) Total Revenue - Total Costs

In an increasing cost industry: A) costs rise as industry output increases B) costs rise as industry output decreases C) the long-run supply curve is flat D) all firms will earn normal profits in the long run

A) costs rise as industry output increases

With health insurance, medical treatment are paid by someone other than the patient which will make consumers with serious diseases relatively: A) insensitive to the price of pharmaceuticals B) sensitive to the price of pharmaceuticals C) insensitive to the premium of health insurance D) sensitive to the premium of health insurance

A) insensitive to the price of pharmaceuticals

The "You can't take it with you" effect potentially increases market power for pharmaceuticals if consumers who are dying of disease are also: A) more incline to spend their money on medicine than to save it B) more incline to bequeath their money than spend in on medicine C) relatively sensitive to the price of life-saving pharmaceuticals D) relatively sensitive to how they spent money

A) more incline to spend their money on medicine than to save it

Marginal cost is: A) the change in total cost from producing one more unit of output B) total cost divided by the change in total output C) the change in total output divided by the change in total cost D) average cost times output

A) the change in total cost from producing one more unit of output

What is the profit maximization condition for a monopolist? A) MR > MC B) MR = MC C) AR = MC D) AR = D

B) MR = MC

Monopolies can arise naturally when: A) a monopoly firm requires the use of natural resources to produce its product B) a large firm can produce at lower cost than other small firms C) the monopolist product is sold in its natural states, such as water or crude oil D) the monopolist product is used to produce other goods

B) a large firm can produce at lower cost than other small firms

When a monopolist decreases the price of its good, consumers: A) buy the same amount of the good as before B) buy more C) buy less D) may buy more or less, depending on the price elasticity of demand

B) buy more

An industry is said to be perfectly competitive when: A) demand in the industry is high B) each firm has virtually no influence over the price of its product C) there are many buyers and sellers and each is large relative to the total market D) supply in the industry is highly elastic

B) each firm has virtually no influence over the price of its product

When a good has relatively few substitutes: A) demand for the good is elastic B) monopolist will tend to increase their markup for the good C) monopolists will tend to decrease their markup for the good D) producers will be able to "steal" all of the consumer surplus from consumers

B) monopolist will tend to increase their markup for the good

Why do monopolistic competitive firms make zero profit in the long run?

Because of the Business cycle

Utilitarianism

Benefit the majority

Free Riders

Benefiting without contributing Ex. Park

Arbitrage

Buying and selling in different markets to benefit from price Ex. Different color HIV pill in African and Europe

How do Cartels cheat?

By producing more at a lower price

Which of the following is not a reason that monopolies arise? A) patentes B) economies of scale C) excess competition D) control of natural resources

C) excess competition

A firm with monopoly power is able to set a markup price that is: A) lower than prices on similar goods sold by competitive firms B) the same as the prices on similar goods sold by competitive firms C) higher than prices on similar goods sold by competitive firms D) the maximum price a market participant will pay for similar goods

C) higher than prices on similar goods sold by competitive firms

Firms in a perfectly competitive industry maximize profits by: A) eliminating the competition B) producing a higher quality good and setting a price higher than the competition C) setting a price equal to the market price, with the assumption that MR = price D) setting a price less than the market price and undercutting the competition

C) setting a price equal to the market price, with the assumption that MR = price

When a pharmaceutical company discovers a new drug, patent law gives it market power by guaranteeing: A) partial ownership of the right to sell the drug for an unlimited number of years B) partial ownership of the right to sell the drug for a limited number of years C) sole ownership of the right to sell the drug for a limited number of years D) sole ownership of the right to sell the drug for an unlimited number of years

C) sole ownership of the right to sell the drug for a limited number of years

The total amount of money that a firm receives from sales of its output is called: A) gross profit B) net profit C) total revenue D) net revenue

C) total revenue

The amount of money that the firm pays for its inputs is called A) marginal cost B) total cost C) variable cost D) fixed cost

C) variable cost

Which of the following is NOT a key decision that a firm must make? A) what prices to set B) what quantity to produce C) where to produce D) when to enter and exit an industry

C) where to produce

Price Discrimination

Charging different prices for the same product to different people

Economic profit differs from accounting profits because of its inclusions of: A) explicit costs B) incidental costs C) potential costs D) implicit costs

D) implicit costs

Which of the following is NOT a source of monopoly power? A) innovation B) patents C) economies of scale D) marketing

D) marketing

Profit is defined as: A) net revenue minus depreciation B) average revenue minus average total cost C) marginal revenue minus marginal cost D) total revenue minus total cost

D) total revenue minus total cost

Modalism Reference

Ex. Someone smoking weed, it does not affect you

Perfect Price Discrimination

First degree discrimination, maximum possible price for each unit to capture consumer surplus for its self. To get your Reservation Price. Ex. the car I bought

Bundling

Have a choice Ex. Xbox bundle, comes with more

Proof of Collusion

High profit in Short term

Benefits of Bundling

Increase profit, motivate customers to purchase

Tying

No choice Ex. Buy a printer have to buy Ink

Public Goods

Non Rival Non-Excludable Ex. Water Fountain (You don't pay for it buy still can use it and someone else can use it too

Non Rival Private Goods

Non Rival and Excludable Ex. Cable TV ( You pay for it you get it but someone else can still get it)

Normative Economics

Normally wrong about what economic policies should be

Force Rider

Paying without benefiting Ex. Education Taxes without having kids

Tragedy of the Commons

People don't care if is not their money Ex. Laundry Room

Positive Economics

Predict economic events

Fair and Equal Treatment

Wheel Chair Example

Prisoner's Dilema

two individuals acting in their own self interest resulting in that non-ideal outcome