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