ECON EXAM 3
List essential elements of a game
Basic elements: players, strategies, playoffs
When John buys new tires for his car, it ____ count towards GDP because the tires are final goods. When Ford Motor Co. buys tires to put on new cars, it ____ count towards GDP because the tires are intermediate goods.
DOES; DOES NOT
What is the relationship between the marginal revenue curve of a monopolistically competitive firm and the demand curve of this firm?
Firm maximizes profits where marginal revenue equals marginal cost
What is the equation for the labor force participation rate?
# in labor force/ total adult population x100
How would market price and quantity change if more firms enter the market?
The market price would lower and quantity would also lower because firms would go out of business
Compare market power for the different kinds of markets
Monopolies have almost complete market power. Monopolistic competitive markets have almost no market power. Oligopolies have a range depending on collusion. Perfect competition has no market power.
What are the differences between monopolistic competition and perfect competition? What characteristics do they share?
Monopolistic competition: -differentiated products -low barriers to entry and exit Perfect competition: -similar products -free entry and exit
How would duopolist compete if they cannot collude?
They try to cut prices lower than the other firm
What is collusion?
When firms team up to increase overall profits
When does short-run economic profit occur?
When price is above ATC
Janice just graduated from college and is searching for a job that fits her graphic-design skills. Will she be considered officially unemployed?
Yes, frictional unemployment. she is trying to find a job that involves her degree.
What is a sign go an economy in poor health?
a prolonged decline in a total output- Low GDP, low per capita GDP
The phase of the business cycle where economic activity is increasing is called an economic ____.
expansion
A small country has an economy that is based entirely on diamonds. When it produces and sells ____ diamonds in a given day, overall income earned will _____.
more; increases
What types of unemployment exists during healthy economic periods?
natural; frictional and structural
LOOK ON DESKTOP QUESTION 3 CHAPTER 21
no, deflation only happens when inflation rate is below zero
What is the relationship between actual unemployment rate and natural rate of unemployment if the economy is in a very expansionary phase?
the natural rate of unemployment is greater than the rate of unemployment as a whole
Kimberly has retired from the military and now works at the post office. Will she be considered part of the labor force?
yes
List actions prohibited by antitrust laws.
Antitrust Law: the gov't efforts that attempt to prevent oligopolies from behaving like monopolies Sherman Act of 1890: anyone who attempts to or does monopolize any trade or commerce between multiple states in US or foreign country is committing a felony Clayton Act of 1914: price discrimination that limits competition, exclusive deals restricting a buyers ability to deal with competitors, bundling, mergers to lessen competition, and prevents a person from holding the title of director on more than one board in the same industry
If the price of industrial plastic injection molding machines rose by 20% and the price of oranges fell by 20%, then all else equal, consumer price index (CPI) would _____________.
fall because molding machines are not consumer goods but oranges are
Which types of unemployment occur even when the economy is healthy and growing?
frictional and structural; both are considered natural unemployment
What is natural unemployment?
frictional unemployment + structural unemployment
What are the three types of unemployment?
frictional, structural, cyclical
Chapter 21 What is inflation?
general increase in the price level measured as the average price level growth rate
LOOK ON DESKTOP QUESTION 2 CHAPTER 21
goods get more expensive due to inflation, CPI will rise
What is a market service? Examples?
health care, entertainment, advice, travel, banking, services are intangible
When GDP increases, national income _____ and national output _____.
increases; increases
The consumer price index (CPI) is the predominant measure of _______.
inflation and the cost of living
The percentage change in the overall level of prices in an economy is called ____.
inflation rate
When Ellen buys a new computer for her accounting business, it is included in gross domestic product as ________ and when she buys a new computer for personal use at home, it counts as ________.
investment; consumption
Definition of product differentiation.
process that firms use to make a product more attractive by contrasting its unique qualities with competing products
What are the two features of monopolistic competition?
product differentiation, free entry and exit
All three types of unemployment are difficult on households. True or False?
True
Describe the Prisoner's dilemma.
Two suspects are interrogated separately both have two options: confess or keep quiet. The dilemma part is the outcome option. They could both keep quiet= 1 year in jail each Both confess= 10 years in jail OR one confesses and the other keeps quiet= the one who confesses walks and the suspect who keeps quiet gets 25 years in jail.
List some industries that are oligopolies
Verizon, AT&T, T-mobile
Which type of unemployment can be negative?
cyclical
In macroeconomics, for the nation as a whole: Are output and income identical or different?
equal
LOOK ON DESKTOP QUESTION 21 CHAPTER 19
every point where the short run and long run graphs meet: 2000, 2004, 2008, 2012
What is markup?
P-MC price is higher than marginal cost
LOOK ON DESKTOP QUESTION 25 CHAPTER 19
The value of GDP is $600 million
Farmer Ashley produces oranges. She sells half of her inventory to people at her roadside stand for $5000 and sells the other half to Tropical Juice Co. for $10000. Tropical Juice Co. uses the oranges to make orange juice, which it sells to consumers for 15000. The total impact of these transactions on GDP is ____.
$20,000
A bakery produces a cake. It pays $6 for the flour and outer case, $10 for the eggs, and $8 for the sugar. It sells the cake to a customer for $50. These transactions contribute ____ to GDP.
$50
Farmer Antonio grows wheat and sells it to the miller for $25,000. The miller turns it into flour and sells it to Amy's Bakery for $35,000. The Amy's Bakery uses the flour to make bread that it sells to customers for $50,000. The total contribution of these transactions to gross domestic product (GDP) is _______.
$50,000
What are the characteristics of an oligarchy?
- few sellers -differentiated products and use ads to distinguish -barriers to entry
Chapter 13 What do a monopoly and an oligarchy have in common?
-barriers to entry -long run economic profit is possible
The consumer price index (CPI) in the base year will always have the value of _______.
100
LOOK ON DESKTOP QUESTION 20 CHAPTER 19
2001-2005 2009-2013
LOOK ON DESKTOP QUESTION 19 CHAPTER 19
2005-2009 and 2000-2001
It is rare for deflation to occur in modern times. However, it is likely to occur during severe recessions. In what year did deflation occur in the United States?
2008
The inflation rate for the current year is measured by which equation?
2nd year CPI- 1st year CPI / Its year CPI x100
LOOK ON DESKTOP QUESTION 25 CHAPTER 20
9.4 unemployed / labor force x100
What is the definition of game theory?
A branch of mathematics that economists use to analyze strategic behavior of decision makers Can be played simultaneously or sequentially
What is the difference between the consumer price index (CPI) and the gross domestic product (GDP) deflator?
CPI measures the goods and services measured out of pocket and GDP measures the final sale of goods and services purchased by consumers
Solve for the Nash equilibrium of a game
Each decision maker is choosing his or her best response to what the other decision maker has chosen
Jade has stopped looking for a job because she feels there are no jobs available for her. Will she be considered officially unemployed?
No, she is not currently looking for a job, she is discouraged.
What is GDP?
Gross domestic product: the market value of all final goods and services produced in a nation within a specific period of time sum of all output from all economic activity
What are the differences between monopolistic competition and monopoly? What characteristics do they have?
In a monopoly there is one producer who decides the price and quantity of the product. In a monopolistic competition there are independent sellers and each firm has relatively small market share meaning no individual firm has power over the price. -Differentiated products -downward sloping demand curves -equal MC and MR -charge a price above MC
How do you calculate market outcomes for a competitive market?
MR=MC, price and quantity
How do you calculate market outcomes for a monopoly?
MR=MC, price and quantity
What is the condition of profit maximizing for a monopolistically competitive firm?
MR=MC; price is higher than marginal revenue, not equal to it because the demand curve is downward sloping
Chapter 19 What is studied in macroeconomics?
Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. -inflation -unemployment -economic growth
Is the market price of a gallon of gasoline a macroeconomic or microeconomic topic? Why?
Microeconomic because it is the price of a single product.
What is the difference between a monopolistically competitive demand curve and a perfectly competitive demand curve?
Monopolistic competitive demand curve is downward sloping because people are convinced the product is different; charges a price that exceeds marginal costs. Perfectly competitive has a horizontal demand curve, the price it receives is the same for every unit sold
What are the definitions of a monopoly and an oligopoly?
Monopoly: one seller, unique product with no substitutes, significant barriers to entry Oligopoly: few sellers, differentiated products (most of the time)
Would short-run (negative) economic profits persist in the long run in a monopolistically competitive market?
No
Would short run economic profits persist in the long run in a monopolistically competitive market?
No, because new firms would enter and steal the business bc of free entry and exit.
Would it be easier to form a cartel if there are more firms?
No, more firms the higher the chance is someone will cheat the system
What is tit-for-tat strategy?
Strategy that promotes cooperation between players mimicking the opponent's most recent decision with repayment in kind
What are good indicators of market power?
The ability to change market prices, high concentration ratio
What is dominant strategy?
The best response for a player to choose NO MATTER what the other player chooses If each player has a dominant strategy, that makes up a dominant strategy equilibrium
What happens when a purely competitive market advertises.
The company goes out of business
Would advertising be useful for a perfectly competitive firm?
advertising at industry level only. Higher costs than rivals and then go out of business
What is intermediate good? Examples?
an intermediate good is a good that is sold to make other goods. they are repackaged by other firms or bundled with other goods to be sold later. Examples: milk sold to coffee shop, tires sold to car manufacturer
What has been the average unemployment rate in the United States since 197?
around 6%
If the consumer price index (CPI) was 100 in 1984, then 1984 was the ________ year.
base
What is structural unemployment?
changes in industrial makeup of economy has caused jobs to not be useful
Why do economists measure the total output of economy?
compare incomes generated by different economies
What is the CPI?
consumer price index, a measure of the price level based on the consumption pattern of a typical consumer
The phase of the business cycle where economic activity is decreasing is called economic ____.
contraction
The value of the consumer price index (CPI) is best described as the relationship of _________.
current year prices to the base year prices holding the market basket constant
An economic downturn can lead mainly to which type of unemployment?
cyclical
During a recession, fewer individuals fly across the country for vacations. As a result, many pilots and flight attendants lose their jobs. How would these individuals be classified as?
cyclical
Compare demand elasticities in competitive markets and those in monopolistic competitive markets
demand is more elastic in competitive markets than in monopolistic competition
What are shortcomings of the official unemployment rate?
discouraged workers are not included as part of the labor force and also underemployed
What is the root cause of cyclical unemployment?
economic downturn
LOOK ON DESKTOP QUESTION 29 CHAPTER 20
employed= labor force - # of unemployed
Deflation typically occurs when ____.
price falls
During healthy economic periods, what happens to cyclical unemployment?
it goes away as it does not occur in a healthy economy
What makes up the sum of the number of unemployed and number of employed people?
labor force
LOOK ON DESKTOP QUESTION 26 CHAPTER 20
labor force/ pop x 100
What happens when new firms enter a monopolistically competitive market?
long run profit goes to zero
Chapter 20 What does "officially unemployed" mean?
looking for a job within the last 4 weeks and is qualified to be employed
What are results of monopolistic competition?
make a profit in the short run, the effect of monopoly like pricing will cause a decrease in demand in the long run. This causes the firms to differentiate their products leading to an increase in average total cost
What is the definition of monopolistic competition?
many different firms, products are differentiated, free entry and exit
Which type of markets have low barriers to entry?
monopolistic competition, perfect competition
The Bureau of Labor Statistics releases consumer price index (CPI) data every ________.
month
Thomas is not working but has given up searching for a job because he believes there are no jobs available for him. Will he be considered part of the labor force?
no, he is discouraged
Does a country with a small per capita GDP have low living standards?
not necessarily, it does not account for other factors as leisure, health, underground economy, or non market goods
Game theory is especially useful got analyze one type of market. Which one?
oligopoly
Compare market outcomes for competitive, monopoly, and duopoly.
oligopoly falls somewhere between competitive market and monopoly outcomes. Output is likely to be higher than monopoly and lower than competitive market. Higher output makes oligopoly prices generally lower than monopoly prices, but higher than those found in competitive markets.
What kind of firms are more likely to collude?
oligopoly firms will collude to act as a monopoly
How would collusion work?
only a few firms can collude. by changing the price of their goods, they act as a monopoly and divide the new profits. only works if no firms cheat
To determine living standards for the average person, we calculate ____.
per capita GDP
Which type of markets have a markup of 0?
perfect competition
If the price of a typical market basket of goods increases from one year to the next, the consumer price index (CPI) will _______.
rise
What is the definitions of concentration ratio?
sales of the largest four firms as a percentage of total industry sales. High concentration ratio the greater the market power.
The production of ____ represents the largest share of US GDP.
services
What is a cartel?
several firms band together to manipulate the market so they can behave like a monopoly. Increases everyone's profits and implement fixed prices
The business cycle measures ____.
short-run fluctuations in economic activity
Marcus was an aircraft mechanic for 27 years. An advancement in technology automated his job, so Marcus lost his job. A person who loses his or her job this way would be considered _______ unemployed.
strucutally
Per capita GDP is a good, but imperfect measure of ____.
the growth of an economy; living standards
If a large group of US workers begins to retire what will be its effect on labor force?
the labor force will decrease
LOOK ON DESKTOP QUESTION 24 CHAPTER 19
the market value of television is $500 million
LOOK ON DESKTOP QUESTION 23 CHAPTER 19
the market value of wheat production is $100 million
Since 1950, what has happened to the percentage of women participating in labor force?
the percentage of women in the labor force has increased
Why is monopolistic competition not efficient?
the price of the good is not equal to marginal cost. Produces at excess capacity
Why is the demand curve for a monopolistically competitive form downward-sloping?
there are differentiated products meaning there are not perfect substitutes for each product. Gives firm some ability to set its own price.
What misconceptions do people have about unemployment?
there are some who are underemployed or discouraged from finding jobs
GDP is defined as the ______ of all final goods and services produced within a country during a specific period of time.
total market value
The overall price level in the economy is a topic of macroeconomics. True or false?
true
Which is the main statistic used to monitor unemployment in the economy?
unemployment rate
What is the natural rate of unemployment?
unemployment that happen due to a growing economy
Where does the expansion phase of a business cycle begin?
when an economy moves from trough to peak
Give an example of a case when unemployment rate is equal to the natural rate.
when cyclical unemployment's at zero then the economy is healthy
LOOK ON DESKTOP QUESTION 28 CHAPTER 20
work eligible in and not in labor force added together
Aileen is a full-time student working part-time. Will she be considered part of the labor force?
yes