markets

Question 1

when is an effort cost part of DWL

Answer 1

if no one is receiving that cost (e.g. consumers stand in line for goods)

it is not DWL if someone receives the cost (i.e. consuemrs bribe someone to get goods)

Question 2

statuatory incidence

in terms of taxes

Answer 2

who the law envisions should pay for the tax

Question 3

economic incidence

in terms of taxes

Answer 3

who actually pays for the tax

Question 4

if firms are identical (i.e. horizontal S curve), who pays the tax burden

Answer 4

all of it is paid by consumers bc firms make 0 profit

Question 5

the burden of a tax falls on the side of the market that is relatively more:
a) elastic
b) inelastic

Answer 5

b) inelastic

Question 6

define

compensating wage differential

Answer 6

if people view one job as more pleasant than another, the less pleasant job will pay a higher wage

Question 7

the more (elastic or inelastic) the supply curve of the exporting country, the less of an ability the importing country has to shift a portion of the burden to the other country

Answer 7

elastic

Question 8

what are the commons

Answer 8

the places where resources that aren’t privaely owned/held are (oftentimes) freely accessible to anyone

Question 9

wha are property rights

Answer 9

ownership of resources (i.e. clean air)

Question 10

what is the tragedy of the commons

Answer 10

when resources like clean air are commonly owned and freely accessible, so a DWL arises from their overuse

Question 11

what are pollution permits

Answer 11

the govt. decides how much pollution is acceptable, prints out a number of permits that ad up to this quantity. firms now need these permits to pollute (permits become an input into production)

Question 12

what are pollution taxes

Answer 12

we put a price on pollution directly (price = pollution tax)

Question 13

pollution taxes and pollution permits are xxx images of eachother
a) mirror
b) inverse

Answer 13

a) mirror

Question 14

characteristics of perfect competition

Answer 14

• many small firms
• firms produce perfectly substitutable outputs
• no barriers to entry

Question 15

characteristics of a monopoly

Answer 15

• single large firm
• no close substitutes
• barriers to entry

Question 16

characteristics of monopolistic competition

Answer 16

• smaller bariers to entry
• firms produce somewhat differentiated products

Question 17

characteristics of an oligopoly

Answer 17

• barriers to entry
• few large firms

Question 18

what is MR equal to for firms with no market power

Answer 18

price at which that output can be sold

Question 19

relaionship btwn MR curve and D curve

Answer 19

• start at same y-icpt.
• x-icpt. of MR is half of the x-icpt. of D
• once we get past the midpoint of the D curve, MR is neg., which means TR will fall

Question 20

profit maximizing firms will produce as long as xxx>xxx

Answer 20

MR>MC

Question 21

why do monopolies produce DWL

Answer 21

bc they restrict output below the efficient quantity to raise profit

Question 22

put these in order:
* monopoly quantity
* Cournot quantity
* Bertrand quantity

Answer 22

xm < xc < xb

so

pm > pc > pb

Question 23

best response function for firm 2 in the cournot model

Answer 23

x₂ = xᵐ – (1/2)x₁

Question 24

best response function for firm 1 in the cournot model

Answer 24

x₂ = 2xᵐ – 2x₁

Question 25

what does each firm in the cournot model produce, and what is the total otuput of the market

Answer 25

each firm produces (2/3)xᵐ so total output in market is (4/3)xᵐ

Question 26

what is a subgame perfect nash equilibrium

Answer 26

a nash equilibrium w/o non-credible threats

Question 27

how do you find a subgame perfect nash equilibrium

Answer 27

start at the bottom of the tree and work your way up

Question 28

what is a stackelberg game

Answer 28

firm 1 (leader) will start off the game by choosing how much to produce then, firm 2 (follower) will observe what firm 1 did and choose hpw much to produce

Question 29

what is the hotelling model

Answer 29

price is fixed --> firms have to settle at producing the midpoint --> they split the market * there is no product differentiation 1. firms choose product characteristic 2. firms choose price --> firms maximally differentiate in stage 1 in anticipation of softening price competition in stage 2

Question 30

how many competitors does each firm in the circle model have

Answer 30

2: the firms on its sides

Question 31

circle model stages

Answer 31

1. circle is empty – firms decide whether to pay a FC to enter and where to enter 2. firms set their prices --> NE p(n)

Question 32

firms will enter the circle model so lons as ...

Answer 32

profit >= FC

Question 33

what is the profit for firms inside and outside a monopolistically competitive industry

Answer 33

inside: +profit outside: –profit by entering