midterm Flashcards
(108 cards)
A market is perfectly competitive if:
it has many buyers and many sellers, all of whom are selling identical products, with no barriers to new firms entering the market.
A form of market structure studied by economists is monopoly.
A firm is a monopoly if it can ignore other firms’ prices
In the diagram to the right, illustrating a binding price ceiling at P3, the amount of producer surplus transferred to consumers is represented by area _
and the deadweight loss is equal to areas _____
C
B & D
One of the basic facts of life is that people must make choices as they try to attain their goals. This unavoidable fact comes from a reality an economist calls:
scarcity
An example of a public franchise is
a firm that is the sole, government-designated provider of water
Suppose a firm introduces a significantly different version of an old product. How might that firm us brand management?
to postpone the time when they will no longer be able to earn economic profits.
The distinction between a normal and an inferior good is
when income increases, demand for a normal good increase while demand for an inferior good falls.
Does the market system result in allocative efficiency? In the long run, perfect competition
results in allocative efficiency because firms produce where price equals marginal cost.
Does the market system result in productive efficiency?
firms enter and exit until they break even where price equals minimum average cost.
A firm’s profit-maximizing price and quantity is represented by the
Marginal revenue line and where it crosses the MC curve
Do consumers benefit in any way from monopolistic competition relative to perfect competition?
that is appealing because it is differentiated
What information must economists have to estimate the price elasticity of demand?
the demand curve for a product.
How is the prisoner’s dilemma result changed in a repeated game?
players can employ retaliation strategies
The primary difference between absolute and comparative advantage is
absolute advantage refers to the ability to produce more of a good or service using the same amount of resources and comparative advantage refers to the ability to produce a good or service at a lower opportunity cost.
Market price is determined by
both supply and demand
To have a monopoly, barriers to entering the market must be so high that no other firms can enter. Do network externalities create or remove barriers to entry? Explain.
create barriers to entry because if a firm can attract enough customers initially, it can attract additional customers as its product’s value increases by more people using it, which attracts even more customers.
How is game theory used in economics?
the rules of the game include matters beyond a firm’s control, a strategy is a firm maximizing profits and the payoffs are profits.
Owners and managers control some of the factors that make a firm successful such as:
the firm’s ability to differentiate its product
A(n) ______is someone who operates a business, bringing together the factors of production l— labor, capital, and natural resources —to produce goods and services.
entrepreneur
the study of the economy as a whole, including topics such as inflation, unemployment, and economic is?
Macroeconomics
How might the government affect whether a firm is a monopoly?
grant a firm a public franchise, making it the exclusive legal provider of a good or service.
Market power results in
economic profits that can be spent on research to develop new products.
The basis for trade is_______advantage.
comparative
A typical example of price discrimination over time would be when a company
charges higher prices for flat screen plasma televisions when they are first introduced and lower prices later


