Econ Exam 3
An import tariff is when importers have to pay a certain $ amount to bring foreign goods into the country, proportional to amount of goods. This causes an increase...
in domestic price relative to world price
____________ - less units sold means less profit
Quantity Effect
What are some kinds of first degree price discrimination?
buying a car ebay
If a country is a price taker for a good in the world market, its consumption and production decisions of the good...
does not affect the world prices
Import Tarriffs cause an increase in domestic price of a good. Who wins and who loses
domestic producers lose domestic consumers win
_________________ One player's best response, regardless of what the other person does
dominant strategy
Nash equilibrium is not necessarily a _____________________
dominant strategy equilibrium
________________ When each strategy used is a dominant strategy
dominant strategy equilibrium
A Nash equilibrium occurs if ________.
each player chooses strategies that are mutual best responses
If the domestic price of a good in a country is lower than the world price, the country will become an ____________ of the good.
exporter
Infant industries often refers to:
fledgling domestic industries
A few decades ago, there were hardly any Subway restaurants in India. Now, they are present in almost every big city. This is an outcome of:
globalization
The shift toward more open, integrated economies that participate in foreign trade and investment is referred to as:
globalization
If the domestic price of a good in a country is higher than the world price, the country will become an ____________ of the good.
importer
Monopolies exist because of barriers to entry which are circumstances that....
prevent potential competitors from entering the market
___________________ charging different customers different prices for the same good or service when there are no cost differences
price discrimination
The deadweight loss that is associated with a monopolistically competitive market is a result of
price exceeding marginal cost
In comparison to firms in other market structures, monopolists:
produce goods that do not have close substitutes
An import is any good that is:
produced abroad, but sold domestically
An export is any good that is:
produced domestically, but sold abroad
Specialization occurs when each individual, firm, or country:
produces only a few specific goods and relies on trade for the other goods and services it needs.
The use of government regulations and barriers in order to control trade is referred to as:
protectionism
What are some of the kinds of second-degree price discrimination?
quantity discounts package sales menu pricing
What are some kinds of third degree price discriminations?
senior discount student discount
Price discrimination requires the firm to:
separate customers according to their willingness to pay
If a country ends up importing: who wins and who loses
Producers lose Consumers win
According to the Copyright Act of 1790, a copyright's life was limited to 28 years, including extensions. Today, copyrights are valid for the entire period of the author's life plus another 70 years. A copyright for a book that was published before 1923 is likely to have expired by now, but books published after 1923 are still under copyright protection. Research has shown that, of all the books that are in print today, a larger proportion were published before 1923. This is despite the fact that the number of books being published every year has been steadily increasing. What do you think could explain the fact that most of the books available today are from the period before 1923?
A copyright gives the owner an exclusive right to a piece of intellectual property, thus allowing them to act as a monopoly. Monopolists typically reduce quantity supplied to drive up the price of the good that they produce.
Comparative advantage involves the opportunity cost of producing different goods and __________________ relates to production per units of inputs and
Absolute advantage
What are the nash equilibrium requirements?
All players understand the game and the payoffs of each strategy All players have enough intelligence to solve the game. There is a common knowledge that these conditions are satisfied Players know the planned strategy of all other players.
Why do museums often offer discounts to students?
Because students have a lower willingness to pay or a higher price elasticity of demand
What is second degree price discrimination?
Consumers are charged different prices based on the characteristics of the purchase
What is third degree price discrimination?
Consumers are charged different prices based on the characteristics of the customer or location
As a manager of Netflix you realize that the clients preferring romantic movies and comedies are more price-sensitive to the subscription price than the clients preferring other genres. How could you increase the company's profit?
Create a subscription channel for romantic movies and comedies only and charge a relatively lower fee for it (than the price to access other genres)
If a country ends up exporting: who wins and who loses
Producers win Consumers lose
Natural Market power barriers consist of...
Economies of scale Control of key resources Network externalities
Most cities have just one waste collection company (and this is often the same one Waste Management Inc). Why is it the case?
High returns to scale in waste collection
What are the 2 types of barrier to entry?
Legal market power Natural market power
What is the effects of output on the monopoly's revenue?
Less money from previous units sold, because the price goes down
Copyright law protects most software from free distribution (copying and reproduction). The main social cost of eliminating the copyright protection for software would be:
Lower rate of software development.
A monopolist maximizes profits when
Marginal Revenue equals Marginal Cost
Why do Governments restrict free trade?
National Security concerns: infant industry Correcting for differences in environmental regulations. Fear of globalization.
____________ - higher price means more profit on each unit sold
Price Effect
Tom and Harry are participating in a game in which the participants are divided into groups of two. Tom and Harry are in the same group. At each round of the game, Tom receives an item. Tom can either give it to Harry or pass it on to the next team. If he decides to pass it on to the next team, each of them will get $10. If he gives it to Harry, Harry can either pass it on to the next team or sell it himself. If he passes it on to the next team, each of them will get $50. However, if he decides to sell it, he will get $100 and Tom will get nothing. What will happen in equilibrium if Harry is known to be trustworthy and he values his reputation?
Tom and Harry will receive $50 each
Tom and Harry are participating in a game in which the participants are divided into groups of two. Tom and Harry are in the same group. At each round of the game, Tom receives an item. Tom can either give it to Harry or pass it on to the next team. If he decides to pass it on to the next team, each of them will get $10. If he gives it to Harry, Harry can either pass it on to the next team or sell it himself. If he passes it on to the next team, each of them will get $50. However, if he decides to sell it, he will get $100 and Tom will get nothing. Which of the following will happen in equilibrium if the game is played only once?
Tom will not trust Harry and pass the item himself.
What is first degree price discrimination?
When each consumer is charged the maximum he/she is willing to pay
The ability of an individual, firm, or country to produce more of a certain good than other competing producers, given the same amount of resources, is referred to as:
absolute advantage
US antitrust legislation strictly prohibits:
agreement on prices between competitors
Which of the following correctly identifies an argument against free trade? a. Trade leads to a minimization of world production. b. Specialization due to trade can hamper national security. c. Trade leads to an exploitation of developed countries. d. Sellers of exporting nations suffer heavy losses due to trade.
b
Which of the following is true of a (correct) payoff matrix? a. It is the representation of only the best response of each player. b. It takes into account all relevant costs and benefits associated with each action of the players. c. It shows the payment made to each factor of production for the production of a good. d. It does not represent all the costs and benefits associated with the choices of the players
b
Tom and Harry are participating in a game in which the participants are divided into groups of two. Tom and Harry are in the same group. At each round of the game, Tom receives an item. Tom can either give it to Harry or pass it on to the next team. If he decides to pass it on to the next team, each of them will get $10. If he gives it to Harry, Harry can either pass it on to the next team or sell it himself. If he passes it on to the next team, each of them will get $50. However, if he decides to sell it, he will get $100 and Tom will get nothing. Refer to the scenario above. Tom should use ________ to play this game.
backward induction
_____________________:Considering the last decision and deducing what the previous decisions should be
backward induction
Scenario: Company A and Company B are considering whether to spend a certain sum of money to advertise their new range of products. If Company A chooses to advertise while Company B does not, Company Aʹs annual sales will increase by $5 million while Company Bʹs sales will remain unchanged. If Company B chooses to advertise while Company A does not, Company Bʹs annual sales will increase by $5 million while Company A will not experience any change in its sales. If both the companies decide to advertise, their sales will increase by $2 million each and if none of them spends on advertisement, their sales will remain unchanged. Suppose that the cost of advertising in this is $1 million annually for each company. Which of the following is true in this case? a. Company Aʹs best response is to not advertise if Company B advertises. b. Company Bʹs best response is to not advertise irrespective of what Company A does. c. Company Aʹs dominant strategy is to advertise. d. This game does not have a dominant strategy equilibrium.
c
Which one of antitrust cases ended up with splitting the offending company? a. United States v. Microsoft Corp. b. State Oil Co. v. Khan c. United States v. AT&T d. Robertson v. National Basketball Association
c
The ability of an individual, firm, or country to produce a certain good at a lower opportunity cost than other producers is referred to as:
comparative advantage
Trade between nations allows each nation to specialize in the production of goods in which it has _____________________.
comparative advantage
A monopolist maximizes profits by A. producing an output level where marginal revenue equals marginal cost. B. charging a price that is greater than marginal revenue. C. earning a profit of (P - MC) x Q. D. Both a and c are correct.
d
All of these are circumstances that prevent potential competitor from entering the monopolized market except: a. Legal Market Power b. Natural Monopolies c. Unique Assets d. Price Discrimination
d
Firm A is a monopoly because of network effects, whereas Firm B is a natural monopoly. Which of the following statements is likely to be true in this context? a. The average total costs of both firms decrease as they increase their output. b. The value of the product that both firms produce increases with an increase in the number of buyers. c. Firm A enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm B enjoys a monopoly status because the value of its product increases as more consumers buy it. d. Firm B enjoys a monopoly status because its average total cost decreases with increase in output, whereas Firm A enjoys a monopoly status because the value of its product increases as more consumers buy it.
d
At a certain level of production, the marginal revenue and marginal cost of a monopoly are $12 and $11, respectively. What the monopoly can do to increase profits?
increase output
Each dominant strategy is a _______________________.
nash equilibrium
There could be multiple Nash equilibria, but at most...
one equilibrium in dominant strategies
_________________Government-granted permission to be the sole producer and seller of a good. In US patents are typically granted for 20 years.
patent
What are the 2 legal barriers
patent trademark
__________________ Represents payoffs for each player for all combinations of strategies
payoff matrix
Indiana Jones fights against an Egyptian swordsman. Prof. Jones is armed with a bullwhip, fedora and gun. He can strike with a whip to the head and strike with a whip to the torso (to catch the sword) or to shoot his gun. The swordsman can either defend the head or the torso. If a swordsman predict the direction of a bullwhip strike he wins, otherwise he loses. If he predicts the shot from the gun, he still loses. The dominant strategy of Prof. Jones is to:
shoot the swordsman
________________ Players pick their strategies at the same time
simultaneous move game
If a pharmaceutical company discovers a new drug and successfully patents it, patent law gives the firm...
sole ownership of the right to sell the drug for a limited number of years.
Infant domestic industries fail to compete with...
the advanced foreign competitors
The defining characteristic of a natural monopoly is
the economies of scale over the relevant range of output
In a zero sum game, each participant's gain or loss is exactly balanced by....
the losses or gains of other players
Trade between countries results in:
the maximization of total production
Monopolies often decrease economic efficiency (social surplus), because:
they choose to produce less than optimal for the whole economy
Free trade refers to the ability:
to trade without hindrance or encouragement from the government.
________________Government-granted rights to the creator of literary or artistic work. Copyright roughly lasts for 70 years since the author's death.
trademark
____________________ is the prevailing price of the good on the global market.
world price
_______________ In each outcome the sum of payoffs of all the players is equal to 0
zero sum game
Scenario: Two friends have settled on a unique strategy to decide who will complete his homework first and help the other. They have agreed to make one of the three symbols simultaneously with their fists - a rock, a paper, or scissors. Simple rules of ʺrock breaks scissors, scissors cut paper, and paper covers rockʺ dictate which symbol beats the other. If both of them hold out the same symbols, the game is a tie. 52) The game of rock-paper-scissor for $1 payoff (no payoffs in case of a tie) is an example of:
zero-sum game