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ECON 001 > Chapters 9-16 > Flashcards

Chapters 9-16 Flashcards

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1
Q

If I can produce something, why should I buy it abroad?

A

Because another country may have a lower opportunity cost, and we can get more for cheaper if we trade.

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2
Q

What is an export?

A

A good or service that leaves the country.

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3
Q

What is an import?

A

A good or service that comes in to a country

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4
Q

What is autarky?

A

A country that does not trade at all

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5
Q

What is free trade?

A

Trade with no restrictions

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6
Q

What is a tariff?

A

A tax, per unit, on goods entering the country. It gives government revenue.

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7
Q

What is a quota?

A

A numerical limit on imports

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8
Q

What are tariffs and quotas?

A

Voluntary trade restrictions

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9
Q

What is the end result of voluntary trade restrictions?

A

A lower number of imports

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10
Q

What is an embargo?

A

Not trading at all with a specific country

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11
Q

What is the order of different types of trading?

A
  1. Free trade
  2. Tariff
  3. Quota
  4. Autarky
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12
Q

What is the modern day example of autarky?

A

North Korea

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13
Q

What is protectionism?

A

Arguments against free trade

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14
Q

What is the argument for job protection restricting on free trade?

A

Imports cost jobs

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15
Q

What is the counterargument to protectionism based on jobs?

A

Higher numbers of exports create more jobs

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16
Q

What is the argument for national security protectionism?

A

We need to produce items for war in our own country so we aren’t relying on other countries for weaponry.

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17
Q

What is the argument against national security protectionism?

A

What is necessary for national security is a slippery slope, and we tend to trade with friends

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18
Q

What is the argument for infant industry protectionism?

A

We need to protect our infant industries so they can compete with the rest of the world.

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19
Q

What is the counter argument to infant industry protectionism?

A

Industry needs to grow up, and if they are constantly protected, they may not ever be able to compete

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20
Q

What is the argument for unfair competition protectionism?

A

There are very different labor laws around the world, and countries that are fairer to workers cannot compete

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21
Q

What’s the argument against unfair competition protectionism?

A

Let the people decide if they are going to tolerate that

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22
Q

What are the benefits of protectionism as a bargaining chip?

A

A threat that if you don’t buy our good, we won’t buy yours.

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23
Q

What is the counterargument to protectionism as a bargain chip?

A

We may not get the product we want, and it can sour future relations

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24
Q

What is Pareto efficiency?

A

Do something as long as one person is better off, and another is at least the same.

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25
What is political efficiency?
Do something as long as benefits are focused and the costs are diffused.
26
What is utility?
satisfaction level of consuming a good
27
What is marginal utility?
Change in total utility over change in q
28
What is missed when just maximizing utility?
Money
29
Does a corolla or a labor have better marginal utility? What about marginal utility over price? Why is that distinction important?
Lambo has better marginal utility, but corolla has better marginal utility over price. That's important because consumers are going to want to get the most bang for their buck.
30
How do you best maximize utility when you have two products?
1. Find where marginal utility/price is equal in both goods, then exhaust your budget
31
What are some irrationalities that sometimes factor into people's decision making?
Ignoring sunk costs, endowment effect, fairness, network externalities, and celebrity endorsements
32
What do companies want to do?
Maximize profits or minimize losses
33
What is profit?
Revenue minus costs (or PxQ-TC)
34
What are fixed costs?
Costs that do not change
35
What are variable costs?
Costs that vary with output
36
What is a way to express profit, taking quantity away?
Profit= Q(P-ATC)
37
What is technology?
How inputs are turned into outputs
38
What are inputs firms use?
Capital, labor, materials
39
If fixed costs are present, what are we in?
The short run
40
What are economies of scale?
Minimum efficiency of scale (a firm needs to be big enough to be efficient)
41
Can a firm choose price?
No
42
Should a firm shut down just because they are losing money?
No
43
When should you stay in business at a loss?
When P>AVC
44
What costs do economists count for?
Explicit and implicit costs
45
Are zero ECONOMIC profits bad?
No
46
How do firms choose quantity?
Where marginal cost equals marginal revenue, this maximizes profit
47
How many firms are in a perfectly competitive market?
Many
48
How many firms are in a monopolistic competition?
Many
49
How many firms are in an oligopoly?
Few
50
How many firms are in a monopoly?
One
51
What type of product is sold in a perfectly competitive market?
Identical
52
What type of product is sold in a monopolistic competition?
Different
53
What type of product is sold in an oligopoly?
Identical or different
54
What type of product is sold in a monopoly?
Unique
55
What is the ease of entry for perfect competition?
High
56
What is the ease of entry for monopolistic competition?
High
57
What is the ease of entry for oligopoly?
Low
58
What is the ease of entry for monopoly?
blocked
59
Are perfectly competitive firms price makers, or price takers?
Price takers
60
What are the profits of a perfectly competitive firm?
None, they will all break even in the long run
61
What is the price elasticity of demand in a perfect competition?
Perfectly elastic
62
In a perfect competition, what is price equal to?
MR which is equal to MC
63
What happens when a perfectly competitive firm makes profits in the short run?
New firms will come in, taking away some of the profits
64
What happens when a perfectly competitive firm loses money in the short term?
They will either leave the market, or stay until firms leave, bringing profits back to zero
65
What market structure is the most efficient?
Perfect competition
66
What is allocative efficiency?
MC=MB or D=S
67
What is productive efficiency?
P=ATC min
68
Which market achieves both allocative and productive efficiency?
Perfect competition
69
How are monopolies made?
By having an innovative product, government intervention and advertise
70
Why does the government issue patents?
So firms will develop new products
71
What are close monopolies?
Monopolies with legal protection by the government
72
What is a natural monopoly?
A monopoly with economies of scale so large it is nearly impossible for another firm to break in
73
What is an open monopoly?
A monopoly where any firm can join in, but the firm that is there was first
74
Does a monopoly have allocative or productive efficiency?
No
75
How do monopolies determine price?
By finding the quantity they should produce at at MC=MR, they finding that quantity on the demand curve
76
Are monopolies price makers or price takers?
Price makers
77
What is excess capacity?
Q productive efficiency - Q max profits
78
How is a monopolistic competition market defined?
A market with goods that are very similar, but not exactly the same
79
Why are monopolistic competition firms called "monopolistic"?
The graph for monopolistic competition is similar to a monopoly
80
Why do monopolistic competitions have similarities to perfectly competitive firms?
Monopolistic competitions have low barriers to entry, meaning other firms will join in, until the demand curve becomes so elastic, that all firms are breaking even.
81
Does a monopolistic competition have allocative efficiency and/or productive efficiency?
It has productive efficiency
82
What is perfect price discrimination?
When a firm offers a different price to every single customer, based on what they are individually able to pay
83
What are three things needed for price discrimination?
Market power, identify customers will to pay, and no arbitrage
84
Is a perfect price discrimination efficient?
Yes
85
What is the consumer surplus of perfect price discrimination?
Zero
86
What do we use instead of graphs with oligopoly?
Game theory
87
What are the rules of our version of game theory?
2 players, each with 2 possible choices
88
What is a dominant strategy?
When a player sticks with the same choice, no matter what the other player does
89
What is the outcome of the game when both players have dominant strategy?
Dominant strategy solution
90
What is Nash equilibrium?
Every solution to the game
91
What is the prisoner's dilemma?
When ignoring dominant strategies leads to a better outcome
92
Why don't oligopoly firms just talk to each other to solve the prisoner's dilemma?
It is illegal
93
What is a cartel?
When firms collaborate to fix prices and make more money

ECON 001 (3 decks)

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