micro exam 3

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negative externality solution

- Market produces where 𝑀𝐵 = 𝑀𝑃𝐶 (produce too much) -To maximize efficiency, should produce where 𝑀𝐵 = 𝑀𝑆𝐶

monopsony power

- a business is the sole buyer - pay lower wages

nonrival

A good for which one person's use doesn't subtract from another's.

rival good

A good for which your use of it comes at someone else's expense.

club good

A good that is excludable, but non-rival in consumption.

common resources

A good that is rival and also nonexcludable

natural monopoly

A market in which it is cheapest for a single business to service the market

monopolistic competition

A market with many small businesses competing, each selling differentiated products.

public good

A nonrival good that is nonexcludable and hence subject to the free-rider problem.

cap and trade

A quantity regulation implemented by allocating a fixed number of pollution permits, which can then be traded.

corrective tax

A tax designed to induce people to take account of the negative externalities they cause.

collusion

An agreement by rivals to limit competition with each other.

nash equilibrium

An equilibrium in which the choice that each player makes is a best response to the choices other players are making.

product differentiation

Efforts by sellers to make their products differ from those of their competitors.

The marginal revenue product is calculated as

MPL × P.

human capital

The accumulated knowledge and skills that make a worker more productive.

market power

The extent to which a seller can charge a higher price without losing sales

marginal private cost

The extra cost paid by the seller from one extra unit.

marginal product of labor

The extra production that occurs from hiring an extra worker.

What changes in a labor market graph if the workers of a company form a union?

The labor market supply curve shifts to the left.

socially optimal quantity

The outcome that is most efficient for society as a whole

tradgedy of the commons

The tendency to over-consume a common resource. - when rival goods are non-excludable

statistical discrimination

Using observations about the average characteristics of a group to make inferences about an individual member of the group

free rider problem

When someone can enjoy the benefits of a good without bearing the costs.

nonexcludable

When someone cannot be easily excluded from using something.

price taker

a buyer or seller who cannot affect the market price

Prisoner's Dilemma

a game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off

oligopoly

a market dominated by a small number of sellers

Diminishing returns to an input occur when

at least one input is fixed.

marginal private benefit

benefit for buyer from one extra unit.

marginal external benefit

external benefit to bystanders from one extra unit.

marginal external cost

external cost imposed on bystanders from one extra unit.

Coase Theorem

externality problems can be solved by private bargains.

corrective subsidy

induce people to take account of the positive externalities they cause.

marginal social benefit

marginal private (buyer) benefit + marginal external (neighbor) benefit

marginal social cost

marginal private cost + marginal external cost

marginal revenue product

marginal revenue from hiring an additional worker.

Substitution effect

measures how people respond to a change in relative prices when the wage rises.

negative externalities are over or under produced?

overproduced

jobs with desirable attributes pay more or less?

pay less

price discrimination

selling the same product at different prices

positive externality

side effect that benefits bystanders

negative externality

side effect that harms bystanders

reservation price

the max price a customer will pay; = marginal benefit

positive externalities are over or under produced?

underproduced

perfect competition

when competitors sell an identical good, there are many buyers, and many sellers

monopoly

when there is only one seller in the marker


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