Microeconomics Final Study Guide

How do you compute the Herfindahl index?

Square each market share and then add them.

What are bonds?

Financial instruments executed by a company to raise money for construction projects. It is a loan which has to be paid back and the corporation has a fiduciary responsibility to not run the business into the ground.

What is a bond yield?

(Coupon Rate * Face Value) / Price

What are the three theories of regulation?

1. Capture 2. Public Interest 3. Public Choice

What are the three types of mergers?

1. Horizontal: merger between firms that are selling similar products in the same market 2. Vertical: Merger between companies in the same industry but at different stages of the production process. 3. Conglomerate: Merger between companies in different industries.

What are the three kinds of labor unions?

1. Industrial: Everyone in the union works in the same industry regardless of the trade they practice. UAW 2. Trade/Craft: Everyone practices the exact same trade, such as IBEW and so forth. 3. Public employee: Government employees who are in a union. Legal only in the last 50 years.

How do unions affect the elasticity of demand for union labor?

1. Limits the availability of substitute products through import restrictions 2. Limits the availability of substitute factors through opposing the relaxation of immigration laws, being in favor of higher minimum wage laws, and usually oppose machines which replace labor. They also stipulate that certain jobs are done by specific types of laborers, such as electricians.

Describe the Sherman Act.

1. Makes the restraint of trade through contracts, trusts, or conspiracy is illegal. 2. Makes the act of monopolization illegal.

What are the three ways to regulate a monopoly?

1. Price regulation 2. Profit regulation 3. Output regulation

What are the six Anti Trust acts?

1. Sherman Act of 1890 2. Clayton Act of 1914 3. Federal Trade Commission Act of 1914 4. Robinson-Patman Act of 1936 5. Wheeler-Lea Act of 1938 6. Celler-Kefauver Antimerger Act of 1950.

In a few words, describe the six anti trust acts

1. Sherman act of 1890:: makes restricting or eliminating competition illegal, and makes the act of monopolizing illegal. 2. Clayton act of 1914: Makes PETIB for the purpose of eliminating competition, illegal. 3. FTC act of 1914: First of the administrative law acts which attempted to reduce excessively aggressive acts of competition. 4. Robinson Patman act of 1936: No deep discounts to the big players if they are not available to all other players. 5. Wheeler Lea act of 1938: Thou shalt not lie in advertising. 6. Celler Kefauver act of 1950: Closed the physical assets exclusion to the B in the Clayton act of 1914.

What are the practices of labor unions?

1. The elasticity of demand for labor 2. The demand for labor 3. The supply of labor

What are the objectives of labor unions?

1. To employ all their members 2. To maximize the total wage bill 3. or to maximize income for a limited number of union members

What are the four aspects to any transaction?

1. Type of product or service 2. Quantity of product or service 3. Price per unit of product or service 4. Date when transaction will take place

What is a monopsony?

A single buyer of a product: whereas a monopoly is a single seller, a monopsony is a single buyer.

What is an investment bank?

A bank that specializes in creating stocks and bonds.

What is a stock?

A chit of ownership in a corporation or its assets.

What is an Initial Public Offering?

A corporation offers stock for sale to investors through an investment bank. In this fashion, savers and investors are brought together. The corporation generates revenue this way. and the shareholders now own little pieces of the corporation.

What is network good?

A good whose value increases as the expected number of units sold increases.

What is a dividend?

A periodic (usually yearly) payment from post-tax corporate profits on a per-share basis to shareholders.

Describe the Capture theory of regulation

A theory holding that no matter what the motive is for the initial regulation and the establishment of the regulation agency, eventually the agency will be captured (controlled) by the special interests of the industry being regulated.

Describe the Interest theory of regulation

A theory holding that regulators are seeking to do- and will do through regulation- what is in the best interest of the public or society at large.

Describe the public choice theory of regulation

A theory holding that regulators are seeking to do- and will do through regulation- what is in their best interest (specifically to enhance their power and the size and budget of their regulatory agencies).

How do you calculate 4-firm and 8-firm concentration ratios?

Add the top 4 or top 8 percentages, respectively.

What is a futures contract?

An agreement to buy or ell a specific amount of something at an agreed upon price at a specified future date. A way that certain businesses, like farmers, create revenue during their down periods. They agree to sell to a commodities broker their projected amount of goods at a specific price. Usually, the businessman in question has been in business for a substantial length of time.

What is the Dow Jones Industrial Average?

An index of the top 30 companies, usually in industry.

What is the Herfindahl Index?

An index that measures the degree of concentration in an industry, equal to the sum of the squares of the market shares of each firm in the industry.

What is an option?

An opportunity, but not an obligation, to buy or sell stocks at a specific price and at a specific quantity during some time frame.

What is a call option?

An option to buy a specific quantity of stock at a specific price during some time frame

What is a put option

An option to sell a specific quantity of stock at a specific price during some time frame

What is a Union Shop?

An organization in which a worker is not required to be a member of the union to be hired but must become a member within a certain period of time after being employed

What is a closed shop?

An organization in which an employee must belong to the union before he or she can be hired

Describe the Celler-Kefauver Antimerger Act of 1950.

Designed to close the merger loophole in the Clayton act by banning anti-competitive mergers that occur as a result of one company's acquiring the physical assets of another company.

Describe the Wheeler-Lea act of 1938

Empowers the FTC to deal with false and deceptive acts or practices.

Describe output regulation of a monopoly

Government mandates a quantity of output it wants the natural monopoly to produce- usually, this means that P is above ATC.

What type of merger is most likely to change competition in an industry?

Horizontal

Describe the FTC act of 1914

Makes illegal any excessively aggressive acts in competition.

Describe the Clayton Act

Price Discrimination (predatory): designed to reduce or eliminate competition is illegal. Exclusive Dealing: prohibiting the carrying of any competitive product a condition of sale is illegal. Tying of Contracts: making the sale of one product contingent upon the buying of another product is illegal. Interlocking directorates: within the same industry, being on the board of more than one company/corporation is illegal. Buying stock: to eliminate the competition by taking it over through shareholding is illegal.

Describe the Robinson-Patman act of 1936

Prohibits suppliers from offering special discounts to large chain stores unless they also offer the discounts to everyone else.

Describe price regulation of a monopoly

Regulating price where demand and marginal cost meet.

What is Maturity Date?

The date the principal of a bond is due.

What is Coupon Rate?

The interest of a bond, printed on the face of the bond.

What is Face Value?

The principal of a bond, printed on the face of the bond.

What is collective bargaining?

The process whereby wage rates and other issues are determined by a union bargaining with management on behalf of all union members.

What is lock-in effect?

The situation when a product or technology becomes the standard and is difficult or impossible to dislodge as the standard.

What is regulatory lag?

The time period between when a natural monopoly's costs change and when the regulatory agency adjusts prices for it.

Describe profit regulation of a monopoly

aka Average Cost Pricing, this is where the government sets the price where demand and ATC meet.