Econ Final

arises when firms act together and form an organization in order to reduce output and keep prices high.

A cartel

Cartel

A group of firms with an explicit formal agreement to fix prices and output shares in a particular market

Externalities

A two party transaction occures but there costs or benefits are borne by a third party

Gini Ratio coefficient

A/(A+B) Perfect income inequality, A is the areas under the 45 degree line and the lorenze, b is the area under the lorenze area and above the horizontal axis

________________ occurs when market forces and other circumstances have allowed several large firms to have all or most of the sales in an industry.

An oligoply

Free rider

an individual who reaps direct benefit from some one elses purchase of a public good

Sales tax incidence

at lower incomes, earners spend mor of theri income which is subject to taxes. vice versa for higher

Rather than arguing over whether the ultimate goal is zero pollution or a reasonable level of pollution, the immediate focus should be to tackle the environmental issues where the ___________________ and the _______________.

marginal benefits are greatest; marginal costs are least

Market share

the percentage of the total market produced by a single firm

Tax incidence

where does the real burden of a tax full

Kip and Yale run separate mining companies in the same forest. Both pollute the river flowing through the forest with debris from their work. In the table below, the first row shows the current level of debris that makes its way into the river from their work. The following table set out information that shows how much it would cost each company to reduce its pollution by additional increments of 10 pounds. Kip Yale Current debris in pounds 60 80 Cost of reducing debris by 10 pounds $5 $2 Cost of reducing debris by a second 10 pounds $10 $4 Cost of reducing debris by a third 10 pounds $15 $6 Cost of reducing debris by a fourth 10 pounds $20 $8 Cost of reducing debris by a fifth 10 pounds $25 $10 If each mining company is forced to cut its debris in half, the respective cost to Kip and Yale will be

$30, $20

Product differentiation:

Firm A could modify its product to make them appealing different in order to sell more

Firms in an ologopoly make strategic decisions

Firms are inter dependt in their decision making thye make decisions based on what they think their compitition will do

Positive profits signal...

For new companies to enter the market, but as more enter it squeezes profit to zero as the new entries clone the uniqueness.

Public assistance/welfare

Governemtn transfer programs that provide cash benefits two families with dependednt children and very poor people without families

Governmment Failure

If the resulting mix of output is inferior to the mix that a pure market out come would generate

CR-4

It is the added market shares of the top four companies market shares

Marginal Social Cost

MSC=MPC+MDC

Which of the following may not characterize an oligopoly?

Many firms

Oligopoly

Market structure where market power is shared by a few dominative firms

Game Theory

Method of analysis that allows for interdepent strategic behavior

___________________ describes a situation where a third party, outside the transaction, suffers from a market transaction by others.

Negative externality

Non-rival in consumption

One person's consumption of the good will not interfere with anothers consumption of the good, availiability will not be diminished

Non excludable

One the good itself have been produced and avaliable for consumption it cannot be withheld from consumption

Transfer Payments

Paymets by the government to people who do not supply goods or services in exchange

Components of Game theory

Players, strategies, and payoffs

The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below. Price Quantity Demanded Quantity Supplied without Paying Social Costs Quantity Supplied after Paying Social Costs 100 0 120 75 80 10 100 50 55 30 90 30 40 55 85 25 30 80 80 20 20 100 65 15 The equilibrium price and quantity when only private costs are taken into account are

Price = $30, Quantity = 80

The supply and demand conditions facing a firm that makes widgets and generates a negative externality by dumping a highly toxic sludge in a nearby river is given in the table below Price Quantity Demanded Quantity Supplied without Paying Social Costs Quantity Supplied after Paying Social Costs 100 0 120 75 80 10 100 50 55 30 90 30 40 55 85 25 30 80 80 20 20 100 65 15 The equilibrium price and quantity when social costs are taken into account are

Price = $55, Quantity = 30

Types of Corrdination

Price-fixing: An agreement to change the same price Price leadership: one firm would set the price and the others would match it Allocation of market shares: each firm would be assigned a quota of production with the sum of al output being the industry's profit maximizing rate of output

In monopolistic competition

Prices are driven down and profit margines are small. Competitors products are substitutes so firms heavily rely on non-price competition

Five approaches have been taken to solving the problem of externalities

Private bargaining and negotiation Legal Rules and proceedures Sale of auctioning of right to improve externalities Direct government regulation

Monopolistic competition profit maximization

Produce an output where MR = MC, and economic profits are made on their unique products

Monopolistic competition results in both

Productive inefficiency and allocative inefficiency

A concentration ratio measures the

Proportion of industry output produced by the largest firms.

_________________________ include both the private costs incurred by firms and also costs incurred by third parties outside the production process.

Social costs

Payroll taxes:

Taxes collected on income or income related items

Economic Income

The amount of money a houshold can spend during a given period with out increasing or decreasing its net assests

Market share can be computed by dividing

The amount sold by a single firm by the total sold in the market.

Marginal Private Cost (MPA)

The amount that a consumer pays to consume an additional unit of a particular good

The free rider dilemma

The command nature of public goods may cause some consumers to try for a free ride

Market failure

The market mechaism does not lend to an officient or optimal market income. Sources: Market power of competition Public goods Externalities Inequalities

Wealth

The market value of assets owned represents potential purchasing power

An industry's market structure refers to

The number and size of the firms in the industry.

Poverty Line

The officially established income level that distinguishes the poor from the non poor. It is set at three times the cost of the department of Ag minimum food mudget

Marginal Social Cost (MSC)

The total cost to society of producing an additional unit of a good or service

Positive externality

Third party benefits becous of a market transaction; not enough is producded docieties benefits are greater then market benefits

Negative externaltity

Third party suffers a cost vbecause of the transaction; two much is produced and sold because societies costs are greater

Progressive tax system

US has one, it imposes higher tax rates on high increases than on low increases

Coordination in Oligopoly

When they compete they are rivals, but there are better out comes. If ribals behave like monopoly they can make more money

Private good

a good or service whose consumption by a person excludes consumption by others

Public goods

a good or service whose consumption by one does not exclude further consumption

Lorenz Curve

a widely used graph of distribution of income with aggregatied percentage of housholds polotted along the x axis and aggregated percentage of income plotted along the varted axis

Using the term "spillover" is a less formal means of describing

an externality

A positive externality arises in a situation where a third party, outside the transaction, Selected Answer:

benefits from a market transaction by others.

Which of the following would be classified as a positive externality?

converting a derelict empty lot to a public vegetable garden

Brand Loyalty

customers only buy products from that brand, preserves market share. customers will pay a higher price, boosting profits.

Compensating differentals

differences in wages that rsult from differences in working conditions; risky jobs usually pay higher wages; highly desirable jobs usually pay lower wages

In a monopolistic competitive industry, firms can try to differentiate their products by

enhancing product's physical aspects and all of the above.

Why do U.S. economists commonly refer to externalities as an example of market failure?

externalities present a case where markets only consider some social costs

Market failure describes a situation in which the market itself ________________________ in a way that balances social costs and benefits.

fails to allocate resources efficiently

Command-and-control regulation is a body of law that

fails to consider private costs of firms

An individual who wants others to pay for public goods, but plans to use those goods for their own purposes, is often referred to as a

free rider

Nash equilibirum

given a rivals set of all possible actions the strategy that gives the agent the best possible outcome

In-kind incrome

goods and services recieved directly, not via a market transaction

Which of the following would most likely create the setting for an oligopoly?

government grants Alex, Trent, and Alyse each a patent for their respective molybdenum based electric car batteries

I'mAComputerCo. would likely be more willing to undertake an innovative research project to reduce the amount of electricity required to run its computers if there were some form of guarantee that if it succeeded,

it could sell the new computers as a monopoly for at least a few years.

If a steel manufacturer considers the costs of labor and materials, as well as the broader costs of environmental injuries resulting from its manufacturing processes,

it is factoring in the social costs of the pollution it generates

Shopping malls typically lease retail space to a large number of clothing stores. When this group of retailers competes to sell similar but not identical products, they engage in what economists call [a]

monopolistic competition

When it is costly or impossible to exclude someone who hasn't paid to use a particular good from using it, then that good is classified as being

non-excludable

A public good is a good that is _________ ___________ , and thus is difficult for market producers to sell to individual consumers.

non-excludable and non-rivalrous

In order for a good to be classified as ____________ , when one person uses the good, others are also able to use it.

nonrivalrous

Oligopolists avoid

price competition and instread pursue nonprice competition like advertising: convincing the consumer that firm As product is better

The payoff matrix in the figure below shows the payoffs for a pricing game. Identify the Nash equilibrium outcome for this game. What outcome and strategies will the firms choose in equilibrium? Firm A will [a] and Firm B will [b].

price low, price low

For a positive externality, than the social benefits.

private benefits of an action are less

For a negative externality, the _______________________ than the costs imposed on society as a whole.

private costs of an action are less

Government has a variety of policies that allow inventors to _____________ , such as the granting patents and ______________________ .

receive an increased rate of return; subsidization of research and development

Cathy can take either of two separate roads to drive to work. The first is a lightly used new toll road that is rarely congested. The second road is a local road with no tolls, but it is often congested and has many potholes. In this instance, the toll road is

rivalrous and nonexcludable

There is a skating rink in your city that is open to anybody to use at any time. They even provide skates for people who don't own any. This is an example of a good that is

rivalrous and nonexcludable

Traditionally, policies for environmental protection in the U.S. have focused on__________________ pollutant could be emitted.

setting limits for how much of each

Generally, market competition and technology can

sometimes a or b.

Effective tax rate

tases paid divided by total income

Normative tax rate

tax paid divided by taxable increase

Tax base

taxable funds availiable to be collected for governemtn revenue Tax revenue = average tax rate x tax base

Market Power

the ability of a firm to set prices above marginal cost With market Power: Prices are higher Quantity is lower Consumer surplus is lower Excess supply exists Firms are not producing using the most efficient technology

Marginal Damage cost

the additional harme done by increasing level of an externality producing activity by 1 unit

Personal income

the amount earned and receieved by household before taxes are paid

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A positive externality that can result is

the bees helping to pollinate the orchard, leading to more fruit.

Social Security system

the federal system of social insureance programs

Which of the following would most likely be recognized as a defining characteristic of a public good?

the good is both a and b above

Optimal mix of output:

the most desirable combination of output attainable using existing resources technology and social values

A beekeeper decides to locate her business on a plot of land that is between an apple orchard and an elementary school. A negative externality that can result is

the possibility of the bees stinging the students at the school.

Some economists argue that if privately owned firms were required to pay the social costs of their pollution, the result would be:

the price of goods will rise and a and b above

If large numbers of individuals choose to behave as free riders,

the public good may never be provided.

Human capital

the stock of knowledge and stills and talentsthat people possess; it can be natural ability or acquired therough the eduction or training; measured in the quality of labor relative to the job

Martiginal tax rates

the tax rate imposed on the last marginal dollar of income also increases as income does

If no externalities of pollution exist in a particular industry, the interaction of demand and supply___________________________

will coordinate social costs and benefits