final micro review 2024

how to interpret the HHI (Herfindahl-Hirschman Index) and what is the order of lowest to highest

- below 1000: this indicates a highly competitive market with low concentration. - 1000-1800: this indicates a moderately concentrated market. - above 1800: this indicates a highly concentrated market, this is when there might be concerns about market power and potential antitrust issues. ranked from highest to lowest; 1) perfect competition 2) monopolistic competition 3) oligopoly 4) monopoly

Cartels:

- can effectively sustain large profits in the long run - are usually illegal - can create outcomes similar to a monopoly

the Clayton Act

- enacted in 1914 this law aims to strengthen and supplement existing antitrust laws. 1. prohibition of certain anticompetitive practices: prohibits specific anticompetitive practices that were not adequately addressed by the Sherman Antitrust Act. including price discrimination, exclusive dealing agreements, and mergers and acquisitions that substantially lessen competition. 2. Price discrimination: the Clayton Act prohibits price discrimination where the effect might substantially lessen competition or create a monopoly. 3. trying arrangements and exclusive dealing overall, the clayton act compliments existing antitrust laws by addressing additional anticompetitive practices and providing regulatory oversight of mergers and acquisitions. it aims to promote fair competition, protect consumer welfare, and prevent the formation or abuse of market power by dominant firms.

elements of rational decision making

- identify preferences - evaluate trade-offs - consider opportunity costs - maximizing utility - using marginal analysis responding to incentives

When a perfectly-competitive industry is in long-run equilibrium,

- market price is equal to minimum long-run average cost - each firm earns a normal return

factors of demand

- price of product - tastes and preferences - consumer income - availability of substitutes - number of consumers in the market - consumer expectations - elasticity vs inelasticity

if the market price is below the average total cost curve then the profit will be

NEGATIVE

which of the following is considered a derived demand for nike

Nike's demand for labor to make their shoes in this case, the demand for labor to make Nike shoes is derived from the demand for Nike shoes themselves. as the demand for Nike shoes themselves.

monopolistically competitive markets

a market structure that combines both monopoly and perfect competition. some features of a monopolistically competitive market: each firm produces similar products, but they are not the same. they have some type of feature that makes them different. - firms can enter or exit the market relatively easily in the long run. there are typically low barriers to entry allowing new firms to compete with existing ones. examples: - fast food, clothing, personal care products, and restaurants.

what kind of industries are considered monopolies?

a monopoly exists when there is only one seller or producer of a product or service controlling the market. industries such as natural gas, electricity companies, and other utility companies. real life monopolies include: Microsoft, google, patents, AT&T, Facebook, and railways.

each firm in a perfectly competitive market is

a price taker

in the context of public goods, what is the impact of free riders?

a public good will not get produced if everyone is waiting for the other guy to pay for it. free riders are individuals who benefit from a public good without contributing to its production or maintenance. public goods are non-excludable (meaning that individuals cannot be excluded from using them) and non-rivalrous (meaning that one person's consumption of the good does not diminish its availability to others), there is a strong incentive for individuals to "free ride" and enjoy the benefits without paying for them.

suppose there was a virus that killed more than 1/4 of the dairy cows in the United States. which of the following best describes the above situation, considering the market for milk?

a shortage leading to an increase in the price. if demand remains relatively constant or even increases, the decrease in supply would result in a shortage of milk in the market. in response to the shortage, the price of milk in the market. in response to the shortage, the price of milk would be expected to increase as buyers compete for the limited available supply.

the reason accounting profits are greater than economic profits is

accounting profits do not include implicit costs. accounting profits only consider explicit costs, which are the actual out-of-pocket costs. implicit costs, which represents the opportunity cost of using resources that the firm already owns, are not included in accounting profits. on the other hand, economic profits consider both explicit and implicit costs. economic profit is the difference between total revenue and total opportunity cost. therefore, economic profit is typically smaller

mutual interdependence of oligopoly implies that firms

always consider their rival's decisions

In an oligopoly, when the quantity effect outweighs the price effect:

an increase in output may increase the firms profits.

which of the following would make the demand for a firms product MORE elastic?

an increase in the number of substitutes available to consumers. when there are more substitutes available for a product, consumers have more options to choose from if the price of the firm's product increases. as a result, they are more likely to switch to the substitutes if the price of the firm's product rises, making demand more elastic. In contrast, if there are fewer substitutes available, consumers have fewer options, and they are less likely to switch even if the price of the firm's product increases, leading to less elasticity in demand.

if a good generates a negative externality and the producer is not forced to correct it, then under the market system, it will lead to:

an underproduction of the good and a price that is too high. when a negative externality is present, the market equilibrium quantity will be greater than the socially optimal quantity, and the market equilibrium price will be lower than the socially optimal price. this leads to an underproduction of the good (less than the socially optimal level) and a price that is too low to account for the external costs imposed on society.

the concave (bowed outward) shape of the PPC (PPF) indicates that

as the production of one good rises, the opportunity cost of that production rises. in a concave PPF, the increasing slope reflects the concept of increasing opportunity cost. As an economy shifts resources from producing one good to producing another, the opportunity cost of producing the second good increases. This occurs because resources are often better suited for producing one good over another, and as more resources are allocated to the less-efficient production, the opportunity cost increases.

why is the demand curve faced by a monopolistically competitive firm downward sloping?

because each firm acts as a little monopoly when it successfully differentiates its product. in monopolistic competition, each firm produces a differentiated product, meaning that it has some degree of market power. when a firm successfully differentiates its product, it can charge a higher price than its competitors because consumers perceive its product as unique. however, to sell more output, the firm must lower its price, as consumers are generally willing to purchase more of a good as its price decreases.

points on the inside of the production possibilities curve (or frontier) show combinations of goods that

can be produced, but that would under-employ the economy's resources. the production possibilities curve represents the maximum possible combinations of goods and services that can be produced given the economy's resources and technology. - these points indicate underutilization or underemployment of the economy's resources.

first degree price discrimination

charging each individual customer a different price based on their willingness to pay. occurs when a business charges the maximum possible price for each unit consumed.

Bobby buys only soda and pizza and is spending his entire income. Currently, the marginal utility from a soda is 10 and the price of a soda is $2; the marginal utility from a slice of pizza is 30 and the price of a slice of pizza is $3. To maximize his utility Bobby should:

decrease his consumption of soda and increase his consumption of pizza. (the higher the better)

derived demand

derived demand refers to the demand of a good or service that arises from the demand for another good or service. The demand for inputs or factors that are used in the production of the final product. for example, - labor- labor is required for -production - raw materials- raw materials such as steel, wood, or agriculture is derived from demand to create the final product. - capital goods: the demand for machinery, equipment, and other capital goods used in production are derived from demand that is used to create the final product.

in the region of diminishing returns the marginal product is_____ and the marginal cost is ______.

falling; increasing each additional unit of the variable input contributes less to total output than the previous unit, leading to a decrease in marginal product. as for marginal cost, it tends to rise as marginal product decreases. this is because diminishing returns mean that each additional unit of input adds less to output but still adds to total cost, resulting in higher marginal cost.

Diminishing marginal utility means that as a person consumes more and more of a good, total utility will ________.

increase at a diminishing rate

A monopolist produces 14,000 units of output and charges $14 per unit. Its marginal revenue is $8, its marginal cost is $7 and rising, its average total cost is $10, and its average variable cost is $9. The monopolist should

increase output, which will result in an increase in the firms positive economic profit. bc the marginal revenue is higher than the marginal cost

. When the price of a normal good falls, the income effect ________ the quantity demanded for this good and the substitution effect ________ the quantity demanded for this good.

increases; increases

points inside the curve represent

inefficient use of resources because the economy is capable of producing more of both goods without sacrificing the production of the other.

the outcome of colluding oligopoly

is the same as that of a monopolist

profit maximizing on graph for monopoly

its where MC and MR intersect, then follow up the point to the demand curve and boom you've got your profit-maximizing.

John works at the spaghetti shop at the mall near his house. the shop lowered its price on lasagna, ceteris paribus. John saw that over time the sales for both Lasagna and garlic bread increased. he knew it was because

lasagna and garlic bread were complements complementary goods are those that are typically consumed together. when the price of one complementary good decreases, the demand for the other complementary goods tend to increase.

a firm facing a downward sloping demand curve must

lower the price to sell more when a firm faces a downward-sloping demand curve, it means that as the firm increases the quantity of goods or services it offers, it needs to lower the price to induce consumers to purchase more. this is because consumers are generally willing to buy more at lower prices and less at higher prices.

Monopolistic competition describes a market with:

many firms that sell goods and services that are similar, but slightly different.

with perfect price discrimination, the market demand curve becomes the

marginal revenue curve (marginal revenue curve and the demand curve become the same thing only under perfect price discrimination)

a firms demand curve for labor is its...

marginal revenue product curve

which of the following best describes the difference between micro- and macro-economics?

micro focuses on the "building blocks" of the economy while macro deals with the "big picture".

a public good is both

non-excludable and non-rival public goods are goods or services that are non-excludable, meaning that individuals cannot be effectively excluded from using the good, and non-rival, meaning that one-person's consumption of the good does not diminish its availability to others.

what kind of industries would be considered oligopolies?

oligopolies are markets in which the industry is dominated by a few companies that are each influential participants in the market. there's no set number of companies that qualify it as an oligopoly, however it is more than two but less than five typically. examples of oligopolies can be found across major industries like oil and gas, airlines, mas media, automobiles, and telecom

Strategic behavior is key in defining which market structure?

oligopoly

one major barrier to entry under pure monopoly arises from

ownership of essential resources by the firm. one of the primary barriers to entry in a pure monopoly is the ownership or control of essential resources or inputs by the monopolist.

second degree price discrimination

practice of charging different prices per unit for different quantities of the same good or service. this is also called product versioning or menu pricing. this is applied through quantity discounts, special offers to customers who buy in bulk over those who buy single product. buy-two-get-one offers.

Third degree price discrimination

practice of dividing consumers into two or more groups with separate demand curves and charging different prices to each group. this happens when a company charges different prices to different consumer groups. this is the most common type of price discrimination.

an industry that had been perfectly competitive becomes a monopoly when Bill Gates buys up all the firms in the industry. As a result of the shift from perfect competition to monopoly, what happens to the price of this product and the quantity.

price rises; quantity produced falls in a monopoly, the monopolist has market power and can set prices higher than under perfect competition. as a result, the price typically rises. additionally, because monopolists often restrict output to maximize profits, the quantity produced tends to fall compared to the level under perfect competition.

for a perfectly competitive firm marginal revenue (MR) equals______

price. - in perfect competition each firm is a price taker, meaning it cannot influence the market price. therefore, the firm's demand curve is perfectly elastic and horizontal at the market price.

In long run equilibrium, a profit-maximizing competitive firm and a monopolistic firms both:

produce the output at which marginal revenue equals marginal cost

which of the following is true?

producer surplus is maximized under perfect competition. in perfect competition, firms produce at the point where marginal costs equals marginal revenue, which maximizes total surplus.

when a firm is perfectly discriminating the price, all surplus goes to_____, creating _____ deadweight loss.

producer; zero in perfect discrimination, the monopolist captures all of the consumer surplus by charging each consumer their maximum willingness to pay. As a result there is no consumer surplus remaining. the entire surplus goes to the producer as revenue., resulting in zero consumer surplus.

monopolistic competition is characterized by:

relatively large number of firms producing differentiated products. the products are similar but no identical, leading to some degree of product differentiation. Because there is differentiation, each firm has some degree of market power, allowing them to set prices to some extent. However, the barriers to entry are generally low, meaning that new firms can enter the market relatively easily.

if a video store lowers its price and price elasticity of demand by 0.75, then:

revenues will increase with a price elasticity of 0.75, that means that the demand is inelastic. when the store lowers its price, the percentage increase in quantity demanded will be proportionally smaller than the percentage decrease in price. the increase in quantity demand will outweigh the decrease in price, leading to an increase in total revenue.

when there is an increase in the demand then the equilibrium price will ______, and the equilibrium quantity will _______.

rise; rise an increase in demand leads to a rightward shift if the demand curve. as a result, the equilibrium price rises due to increased competition among buyers. additionally, the equilibrium quantity also increases as buyers are willing to purchase more at the higher price.

the fact that human wants generally exceed the available resources is known as economic

scarcity

often the fee structure for electric companies are based off of the quantities that a customer consumes, and that on average the price of electricity falls as more electricity is consumed. this is an example of what type of price discrimination?

second-degree discrimination bc where the price of electricity falls as more electricity is consumed.

economic growth can be depicted on a PPC (PPF) graph by

shifting the PPC(PPF) outward. when the PPF shifts outward, it indicates an increase in the economy's capacity to produce goods and services. this expansion of production possibilities can result from factors such as technological advancement, increased capital investment, improvements in human capital, or better resource allocation.

which of the following is a positive statement

stock investors lose money if they sell below the purchase price. - describes a factual relationship

if the cross-price elasticity of jicama and water chestnuts is 1.25, then jicama and water chestnuts are

substitutes this means that when the price of one good increases, the quantity demanded for the other increases.

In which collusion game does a firm post a price and other firms react to this price?

tactic collusion: price leadership

comparative advantage is a concept that states

that opportunity costs dictate what a country produces.

which of the following is the earliest anti-trust law in the us?

the Sherman act

comparative advantage is

the ability of a country, individual, or entity to produce a good or service at a lower opportunity cost than another.

marginal resource cost is

the additional cost associated with an additional unit of input.

suppose that Quentin invents the first fully operational hoverboard. the hoverboard utilizes a propriety technology that Quentin has a patent over. additionally, the materials that make the board magically float are only found in his backyard. As Quentin makes more hoverboards, he becomes increasingly efficient at making them. What kind of firm is Quentin's firm?

the airline industry

which of the following industries would most likely be considered an oligopoly?

the airline industry

in a monopolistic competitive market

the barriers to entry are low

income effect

the decrease in price effectively increases the consumer's real income, allowing them to purchase more of all goods, including the normal good. this increase in real income leads to an increase in the quantity demanded of the normal good due to the income effect.

if the increase in supply is greater than the increase in demand

the equilibrium price will fall.

if the increase in demand is greater than the increase in supply

the equilibrium price will rise.

Michael wants to start up his own business, and needs $25,000 to get it off the ground. He can either withdraw it from his savings account, where he currently earns 3 percent interest, or he can take out a loan for $25,000 and pay 5 percent interest. Michael should compare:

the implicit cost of $750 to the explicit cost of $1,250 and choose to use his savings.

the wage in a perfectly competitive labor market is determined by...

the market demand and supply for labor in a perfectly competitive labor market, the wage rate is determined by the intersection of the market demand for labor.

consider the following natural monopoly. the government decides to pass a law that the monopoly must choose the perfectly competitive price, what will be the result?

the monopoly will earn normal profit. in a perfectly competitive market, firms earn only normal profit, which means that they cover all their explicit and implicit costs, including a normal rate of return on invested capital. The monopoly would not earn any excess profit or economic rent as it would in a monopoly scenario. - natural monopolies tend to have high barriers to entry, such as high fixed costs or control over essential resources, this would defer new monopiles from entering.

which of the following is the best example of the law of demand

the price of CD's fell and Julie bought two instead of one. the law of demand states that, all else being equal, as the price of a good or service increases, the quantity demanded decreases.

the elasticity of supply (Es) for steel is 1.20. this tells us that when the price of steel rises by 10%,

the quantity will increase by 12%. % change in quantity supplied/ % change in price

in a perfectly competitive labor market marginal resource cost is...

the wage rate marginal resource cost (MRC) is the additional cost incurred by a firm when it hires one more unit of a resource, in this case, labor. in a perfectly competitive labor market, the firm is a price taker and faces a perfectly elastic supply curve of labor, meaning it can hire as many workers as it wants at the prevailing market wage rate.

in a small country model, which of the following best describes the results of free trade?

there are winners and losers in free trade.

perfectly competitive market

this is a theoretical model that represents an idealized form of market structure. - there are a large number of buyers and sellers with no single buyer or seller having significant market power to influence the market price. - homogenous products: all goods and services traded in the market are identical or homogeneous. this means that consumers perceive no difference between products offered by different sellers.

Analyze if the following two statements are True or False: i. Marginal decision making is the process of making choices in increments by evaluating additional benefit and additional cost: ________________ ii. Before deciding to take an action we realize that MB<MC. Then we should take this action:

true; false

which of the following is the best example of a good produced and sold in a perfectly competitive market?

wheat wheat is often cited as the classic example of a product traded in a perfectly competitive market. the market for wheat typically exhibits the characteristics of perfect competition, with numerous small producers and consumers. homogeneous products, ease of entry and exit, and no individual firm having the ability to influence the market price.

what does it mean if something is perfectly discriminating

when a firm engages in perfect price discrimination, it means that the firm is able to charge each individual customer the maximum price they are willing to pay for a product or service. this captures the entire consumer surplus for itself leaving no deadweight loss.

we find breakeven price on a graph when

where the marginal cost and demand curve met and the average total cost curve was right below it.

in the long run the monopolistic competitor earns

zero economic profit in the long run, firms in a monopolistic competition tend to earn zero economic profit due to the process of entry and exit.

which of the following does not characterize monopolistic competition?

zero economic profit in the long run in monopolistic competition, firms can earn positive economic profits in the short run due to product. in the long run, because of relatively easy market entry and exit, other firms can enter the market, offering similar products, which erodes the monopoly power of each firm. this competition leads to firms earning zero economic profit in the long run, as firms compete away any excess profits.

explicit costs

The actual payments a firm makes to its factors of production and other suppliers.

Which of the following is most likely to decrease the demand for coke?

Concerns over the empty calories soft drinks cause more people to drink mineral water.

The Federal Trade Commision Act (FTC)

Enacted in 1914 1. prohibiting unfair methods of competition: section five of the FTC Act prohibits unfair methods of competition and unfair or deceptive practices affecting commerce. The provision grants the FTC broad authority to investigate and take enforcement actions against anticompetitive behavior and deceptive business practices. 2. The FTC Act empowers the FTC to protect consumers from unfair or deceptive acts or practices in the marketplace. FTC monitors advertising, marketing, and business practices to ensure compliance with consumer protection laws and take enforcement actions against violators. overall, the FTC Act plays a crucial role in safeguarding competition and consumer welfare in the U.S. by empowering the FTC to investigate, enforce, and litigate violations of antitrust and consumer protection laws.

implicit costs

Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur (what you could use)

what can you say for sure when both demand and supply increase?

Qe will rise, but the impact on Pe is unclear without additional information. when both demand and supply increase, the equilibrium quantity (Qe) will definitely rise because both factors push towards an increase in quantity traded. However, the effect on the equilibrium price (Pe) is uncertain without additional information about the magnitude of the changes in demand and supply and their relative shifts.

Enid is planning what to do over the weekend. She can go to the movie theater or she can stay at home and watch Netflix or she can stay home and cook. Her least favorite activity is to cook. If Enid decides to go to the movie theater, which of the following statements is correct:

The opportunity cost of going to the movie theater is watching Netflix.

Is it possible for the equilibrium price of a good to stay the same while the equilibrium quantity increases?

Yes, if both the demand and supply of the good increase by the same amount.

The economic perspective entails:

a comparison of marginal benefits and marginal costs in decision making.

in the long run a firm increases its output by 15% and finds that its cost rise by 10%. This firm is experiencing

economics of scale. constant returns to scale occur when a proportional increase in all inputs leads to an equal percentage increase in output. in this case, the firm increases its output by 15% while experiencing a cost increase of 10%. since both input and output increase by the same percentage, the firm is facing constant returns to scale. if the firm were experiencing economics of scale, the cost increase would be less than the output increase (cost rises by a smaller level of output). if the firm were experiencing diseconomies of scale, the cost increase would be greater than the output increase. (costs rise by a larger percentage than output).

In the long run firm A incurs total costs of $1,200 when output is 30 units and $1,400 when output is 40 units. Firm A exhibits:

economies of scale because average total cost is falling as output rises. (total cost/ output)

A natural monopoly refers to a monopoly that is defended from direct competition by

economies of scale over a broad range of output.

Sherman Act

enacted in 1890, the earliest antitrust legislation in the U.S. - this act is aimed at promoting competition and preventing anticompetitive practices in the marketplace. - section 1: prohibits agreements, contracts, or conspiracies that restrain trade or commerce among states with foreign nations. this targets things such as price-fixing, bid-rigging, and market allocation agreements that limit competition. - section 2: prohibits monopolization, attempts to monopolize, or conspiracies to monopolize any part of interstate commerce. this is aimed at preventing the abuse of monopoly power to harm competition and consumers.

The Hart-Scott-Rodino Antitrust Improvements Act (HSR Act)

enacted in 1976 - a U.S. federal law that requires companies to notify and provide information to the FTC and the DOJ before certain large mergers and acquisitions can take place. the purpose of this law is to allow these agencies to review proposed transactions for potential antitrust concerns and to prevent anticompetitive mergers that could harm competition and consumers. 1. monopolies: the HSR Act helps prevent the formation of monopolies or the strengthening of existing monopolies by requiring pre-merger notification and review of large mergers. monopolies can lead to reduced competition, higher prices, lower output, and decreased consumer welfare. 2. Oligopolies: The HSR Act helps regulate mergers in oligopolistic industries to prevent firms from colluding or engaging in anticompetitive behavior that could harm consumers. 3. Mergers: the HSR Act requires companies planning significant mergers to submit detailed information about the proposed transaction to antitrust authorities. overall, the HSR Act is important at preventing monopolies and oligopolies, and safeguarding consumer welfare through the regulation of mergers and acquisitions.

marginal utility describes

extra utility obtained from each additional unit consumed.

if perfectly competitive firms are making a profit in the short run, in the long run we would expect:

firms to exit the market causing prices to fall. in perfect competition, if firms are making economic profits in the short run, this signals to other potential firms that there are opportunities for profit in the market. as a result, new firms will enter the market, attracted by the profits. as new firms enter the market, the supply of the product increases, shifting the market supply curve to the right. with more firms producing the same product, the market supply increases, leading to a decrease in market price. this process continues until economic profits are driven to zero in the long run. as firms continue to enter the market and supply increases, prices fall until they reach the level where average revenue equals average total cost , resulting in zero economic profit for firms. at this point, the industry reaches long-run-equilibrium, with firms earning only normal profits.

non-excludable goods

goods and services for which it is difficult or impossible to exclude individuals from enjoying the benefits once they are provided, examples: - national defense - public parks - clean air - street lighting

in the constant-cost industry, the long run supply curve is

horizontal in a constant-cost industry, firms can expand or contract their output without affecting input prices. as a result, the long-run supply curve is perfectly elastic or horizontal at the constant cost level. this means that firms can increase output without experiencing increasing costs, resulting in a horizontal long-run supply curve.