ECON 202 Final Exam

If a market solution provides greater social benefits than private benefits, then:

a positive externality is present

total PS

area above supply curve and below market price

an individual supply labor curve...

can start sloping up and then bend back as wages rise

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

cartel

if an externality exists, it must be because bargaining costs are too high

coase theorem

constant cost industry characteristics

common (domain name, registration, spoons, waiters)

increasing cost industry characteristics

common (oil, steel, nuclear physicists)

deadweight loss and price floors

consumer surplus decreases, producer surplus increases

deadweight loss and price ceilings

consumer surplus increases, producer surplus decreases

the four barriers to entry

control over a key resource or input, network effects, economies of scale, and government barriers

social-cost

cost to everyone: the private cost plus the external cost

decreasing cost industry

costs decrease when output increases, downward-sloped supply curve, created by industry clusters

increasing cost industry

costs increase when output increases, upward-supply curve

high prices (bad for consumers, good for firm), reduces total surplus = deadweight loss

costs of monopolies

constant cost industry

costs stay the same when output increases, flat supply curve

if demand is more elastic (taxation)...

deadweight loss from taxation is larger

bad results of a monopoly

deadweight loss, loss in total surplus, lower quality

consumer surplus

difference b/w the max price the consumer is willing to pay and the market price

the main reason why wages are high in some countries is the:

difference in productivity

more Es

easier to increase production, small share of market for inputs, local supply, long run

advantages of large-scale production that reduces average costs as quantity increases

economies of scale

Explain why workers in developed countries, like the United States, earn more money for the same type of work than workers in less-developed countries, such as India

education, lower supply = more money, productivity, more valued products

flatter demand curves

elastic

|Ed| > 1

elastic

external costs cause the market quantity to be ____ than the efficient quantity

greater

dominant strategy is the...

higher payoff regardless of what the other company does

when there is a shortage, sellers have the incentive to ____ their price and buyers have an incentive to offer a ____ price.

increase, higher

how much a monopolist can charge price above marginal cost

monopolist markup

a market with many firms, a differentiated product, and little to no barriers to entry is a ___ market

monopolistic competition

market with a large number of firms selling similar but not identical products

monopolistic competition

market that is dominated by small number of firms

oligopoly

government created, corrupt, do not have as much of an incentive to lower costs compared to a competitive firm

other costs of monopolies

high barriers to entry, brands and trademarks, products that are difficult to immediately duplicate

other sources of market power

price floor creates a ___

surplus , ex: minimum wage

in the long run, demand decreases until

tangent to AC

tax wedge

tax = price paid by buyers - price received by sellers

government solutions to externalities

taxes, subsidies, command and control, tradeable allowances

private and public solutions to the existence of externalities in markets

taxes, subsidies, regulation, command control, bargaining

for a firm in a competitive industry...

the marginal revenue is the price

In a monopolistically competitive market, new firms will enter the market as long as:

P > AC

If a market solution provides greater social costs than private costs then:

a negative externality is present

increase in price buyers pay is much more than what sellers receive

buyers bear more of the tax burden

demand is more elastic than supply

buyers pay less of tax

demand is less elastic than supply

buyers pay more of tax

if a tax is imposed on a market with inelastic demand and elastic supply:

buyers will bear most of the burden of the tax

low markup

elastic demand

less Ed

fewer subs, short run, generic products, necessities, small part of budget

good results of a monoply

increases innovation, research and development

steeper demand curves

inelastic

|Ed|< 1

inelastic

high markup

inelastic demand

improves the competitive process by educating the consumer about prices and new products

informative advertising

the demand curve is inelastic if the absolute value of the elasticity is:

less than 1

demand is more elastic in the ___-___.

long-run

firms operating in a cartel have a large incentive to cheat on the agreement by:

lowering prices and increasing production

the increase in firm revenue when an additional worker is employed

marginal product of labor

less Es

more difficult to increase production, large share of market for inputs, global supply, short run

Pfizer sells Atgam in New Zealand for $14 per pill and in Brazil for $8 per pill. This implies that the demand curve in New Zealand must be ___ than in Brazil.

more inelastic

more Ed

more subs, long run, luxuries, specific brands, large part of budget

a single firm that can supply the market at a lower cost than two or more firms

natural monopoly

Ed are always ___.

negative

the prisoner's dilemma is the ____ ____ invisible hand

negative complement

whoever is ______, bears the burden

not as sensitive to price

a market with many firms, a similar product, and little to no barriers to entry is a ___ market

perfect competition

charging each customer his or her maximum willingness to pay

perfect price discrimination

can create market power for firms through brand differentiation

persuasive advertising

in the short run for a stable, monopolistically competitive market for restaurants there are:

positive profits on average, and consumers have strong preferences about where they eat

Unions...

raise wages for some workers and lower wages for other workers

when elastic...

revenue goes down when price goes up

when inelastic...

revenue goes up when price goes down

increase in price buyers pay is much less than decrease in price sellers receive

sellers bear more of the tax burden

price ceiling creates a ____

shortage, ex: rent controls

game theory is the study of __

strategic decision making

Products can be differentiated along many dimensions. List the 4 from class

style, taste, location, features

total CS

the area below the demand curve and above the market price

producer surplus

the difference between the market price and the lowest price producer would be willing to accept

decreasing cost industries explain

the existence of industry clusters

why would restaurants choose to give discounts to those people who come in early to eat?

to maximize profit (best interest)

the practice of a firm selling one product that requires the consumer to purchase another of the firm's products

tying

decreasing cost industry characteristics

uncommon (carpets in Dalton, Georgia, Silicon Valley, Aalsmeer flower market)

|Ed| = 1

unit elastic

when comparing a monopoly with a competitive industry, monopoly quantity:

will be lower, and monopoly price will be higher, than that of a competitive firm

in the long run for a stable, monopolistically competitive market for restaurants there are:

zero profits on average, and consumers have strong preferences about where they eat