ECON2010 - FINAL

Which factors determine the firm's elasticity of demand?

1. Elasticity of market demand 2. number of firms 3. interaction among firms

Profit maximizing when: 1. MONO (MC =MR) 2. Perfect Competition 3. MONOP

1. MC =MR -> MR = R' = D but 2*slope -> MC = (C)' 2. D = S or P = MC 3. ME= MV , AE = S -> ME = (S)' -> MV = D

When there are externalities, economic efficiency can be achieved without government intervention

1. few firms 2. property rights = well-defined

When the bandwagon effect exists, a change in price is likely to

BANDWAGON = buying a good since other people had it -> D curve would be FLATTER with the effect -> D curve would be MORE elastic -> change in TR > TR without network externalities

Common property resources tend to be

Common property resource = ev has access to it => OVERUSED

TAX is on CONSUMERS if D & S?

D = Inelastic > S = elastic

firm's demand curve is downward sloping, marginal revenue is

D: P= a - bQ MR = D curve but 2*slope = P = a - 2bQ -> Pd > Pmr -> less than the Price

Which of the following is NOT true regarding monopoly?

Monopolist can charge as high a price as it likes. NOPE -> want to charge higher P -> lower Q

Mc = const mec = increases with Q plastic D = downward slopping ? What happen to SOCIALLY OPTIMAL (MB =MC) when MEC shift UP?

P increase Q decrease

CPI is higher this year than last?

There been a inflation since last year

2 investment oppotunities same expected value of 100k (A) var = 25k (B) var = 10k Most investors (who dislike risk) would prefer A or B ?

Var B <A -> B has less risk

competitive market for rice in Japan was suddenly monopolized. The effect of such a change would be:

decrease CS

The provision of an education in public school is

exclusive and rival -> exclusive since only people who PAID has ACCESS or you can STOP someone from using it. -> rival since good can be COMSUME by ONLY 1 PERSON, you pay for school for only you could go to school. *non-rival : public park since a lot people can use it at the same time

How might department stores best protect themselves against the risk of recession?

sell NORMAL + INFERIOR

(1) The process of testing and revising theories is central to the development of economics as a science. (2) Theory is imperfect and may not adequately describe economic behavior in some cases.

(1) - TRUE, testing + revising -> econ development (2) - TRUE, Theory is obs = IMPERF

MC =10 Ed = -2 firm's profit maximized when P=?

(p-mc)/p = -1/Ed (p - 10) / p = -1 / -2 -> p = 20

monopoly power will be exhibited by firms?

MONO POWER = charge P > MC they can change the price since they're MONO -> so if there are more firms, they wont have MONO PW -> few firms -> and when D curve = Inelastic -> because if D is elastic = consumers r sensitive to P change, so if MONO charge P>MC, people wont buy it

. To find the social marginal benefit of public goods, one needs to

MSB = MB (D) +MEC should be this but the ANS: -> sum D vertically

Constructing plastic containers produces air pollutants. Therefore, in the market for plastic containers,

MSC = MC + MEC and since MC = S obs MSC > MC = S

tax is imposed on the sale of a product of a monopolist, the resulting price increase will

P increase < tax usually but not always

When negative network externalities are present (SNOB)

SNOB - people buy less of a good as more people has it -> D curve is STEEPER with the effect -> D curve is LESS ELASTIC

long run, new firms can enter an industry and so the supply elasticity tends to be

SR: fewer firms -> dont have substitute when the Price changes -> INELASTIC LR: more firms -> comsumer are now sensitive to the Price change since they can substitute now-> LR : more Elastic > SR

Monopoly power results from the ability to

Set P > MC since P = MC means perfect competition so mono has the power to charge P>MC

steak and potatoes = complements the price of steak goes up, the demand curve for potatoes

complement = they GO together -> P steak increase -> people wont buy steak -> and they also wont buy potatoes -> D potatoes decreases -> shift LEFT

A positive externality is shown by a marginal social benefit (MSB) curve that is

definitely relate to the D curve so is it on the Left or Right of the S curve? -> since MSB = MB (D) + MEB -> MSB : to the RIGHT of the DEMAND curve

Having a refundable deposit for recyclable material

social cost is always there -> refundable deposit affects PRIVATE COST -> so that PRIVATE = SOCIAL -> raises the marginal private cost of disposal.