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Economics > Final Exam > Flashcards

Final Exam Flashcards

1
Q

What are the characteristics of a perfect competition?

A
  1. ) many small firms (small market share) (P=MC)
  2. ) homogenous goods => same price (P=MC)
  3. ) No barriers to entry => long run (profit = 0)
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2
Q

Natural Barriers

A
  1. ) start up costs
  2. ) cost advantages
  3. ) monopoly over key inputs
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3
Q

Legal Barriers

A
  1. ) patents
  2. ) copy right
  3. ) government granted monopoly
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4
Q

Steps for Profit Max

A
  1. ) firms set output
  2. ) firms sets price
  3. ) firm calculates profit
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5
Q

Firm sets output - produce where MR=MC

A

Marginal Revenue (MR) = ^TR / ^Q

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6
Q

Firm sets price (P*)

A

Use demand curve & Q* to get P*

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7
Q

Calculate Profit Max

A

profit = (P-AC)Q

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8
Q

What are the two different pricing strategies?

A
  1. ) Linear Pricing

2. ) Nonlinear Pricing

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9
Q

Linear Pricing

A

one price for all units sold

(MR=MC approach) P>MC, DWL exists

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10
Q

Nonlinear Pricing

A
  1. ) price discrimination

2. ) two-part tariff (buffet pricing)

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11
Q

Price Discrimination

A

set different price (for some good) for different consumers on basis of max price willing to pay, not on basis of different in cost

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12
Q

What are the observable variables correlated with max price?

A
  1. ) income
  2. ) timing of purchase
  3. ) certain characteristics
  4. ) age/ gender
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13
Q

What are the two types of product discrimination?

A
  1. ) horizontal discrimination

2. ) vertical discrimination

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14
Q

Horizontal Discrimination

A

based on different tastes; if P of all goods in market is the same, then all goods in market would have positive demand

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15
Q

Vertical Discrimination

A

based on agreed upon difference quality (high vs. low) if P of all goods was the same, then only highest quality good has positive demand different in income drive sales.

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16
Q

Oligopoly

A

few firms, heterogenous of homogenous goods, high barriers

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17
Q

Game Theory

A

formal approach to explain/predict outcomes involving strategic interaction (baseball)

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18
Q

What are the terms that go hand in hand with game theory?

A
  1. ) players
  2. ) strategies
  3. ) pay offs
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19
Q

Players

A

individuals who make decisions (choose a strategy) firms, people, “labor”

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20
Q

Strategies

A

decisions associated with a certain action; set price, set output ads expand

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21
Q

Pay Offs

A

reward for each player associated with each outcome; profit, happiness

22
Q

For sequential games what do you do?

A

look ahead, reason back

23
Q

Look ahead

A

eliminate choices that other player won’t select

24
Q

Reason back

A

choose best outcome for me out of whats left

25
Q

Precommitment Mechanism

A

precommit to a strategy (must involve a cost)

26
Q

For simultaneous games what do you do?

A

solution concept is find dominant strategy (if one exists) for each player

27
Q

Prisoners Dilemma

A

non-cooperative outcome (maximize my net benefit) is not as good as cooperative outcome (maximize OUR net-benefit) but can’t achieve the cooperative achievement

28
Q

How do you resolve the prisoners dilemma? How do we keep cartels from falling apart?

A
  1. ) trust
  2. ) punishment (snitches get stitches)
  3. ) observe other players
29
Q

Allocative Efficiency

A
  1. ) market power
  2. ) externality
  3. ) public goods
30
Q

Market power?

A

ability to mark up price over MC

 - rate regulation 
 - antitrust
31
Q

Externality

A

when the consumption/production of one has impact on others.

32
Q

Public goods

A

good or service that some can get for free (free riders)

33
Q

Collusion

A

firms get together & act as one

34
Q

Explicit collusion

A

cartels, price fixing

35
Q

Implicit collusion

A

price leadership

36
Q

When does the government intervene?

A
  1. ) monopoly power
  2. ) externalities
  3. ) public goods
37
Q
  • Perfect competition firms always achieve allocative efficiency (produce where P=MC
A

.

38
Q
  • Monopoly produces where P>MC when using ‘linear pricing” (MR=MC)
A

.

39
Q
  • Possible for monopoly - to allocatively efficient if use two-part tariff or price discrimination
A

.

40
Q

Over capitalization

A

firm moves toward more capital and more capital intensive production

41
Q

Anti-trust

A
  1. ) prevent abuse of monopoly status
    • predatory pricing
  2. ) government of monopoly-like status
    • cartel, price fixing
    • mergers
42
Q

Mergers

A
  1. ) horizontal - merger within a stage of production

2. ) vertical - merger across stages of production

43
Q

Coase Theorem

A

private sector solution to externalities

44
Q

If transaction/negotiating cost is low, and property rights well defined, then possible for private sector (individuals) to internalize an externality

A

.

45
Q

Nonrival consumption

A

where ones consumption of a unit doesn’t affect ability of others to consume same unit. (lecture, movies, police, fire, military)

46
Q

Private good

A

good/service with rival consumption where non players can be excluded

47
Q

Rival consumption

A

where one persons consumption of a unit reduces the ability of others to consume same unit.

48
Q

Characteristics of a perfect competition

A
  • many small firms (price takers)

- No barriers to entry

49
Q

Characteristics of a Monopolistic Competition

A
  • many small firms
  • heterogenous goods
  • No barriers to entry
50
Q

Characteristics of an Oligopoly Competition

A
  • few firms

- homogeneous goods / heterogeneous goods

51
Q

Characteristics of a Monopoly Competition

A
  • 1 firm

- very high barriers

Economics (3 decks)

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