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.