AP

Question 1

Qualities of perfect competition

Answer 1

-many firms
-identical products
-low barriers
-zero econ profit (LR)
-no influence on price
-no monopolies

ex: farmers’ market

Question 2

Qualities of monopolies

Answer 2

-one seller
-high barriers
-unique good
-price seekers

ex: water/electricity

Question 3

Qualities of monopolistic competition

Answer 3

-many sellers
-low barriers
-differentiated goods
-some impact on price

ex: restaurants

Question 4

Qualities of oligopolies

Answer 4

-few sellers
-high barriers
-different OR homogeneous goods
-some impact on price
GAME THEORY

ex: cars

Question 5

if there are neg externalities, will the free market over or under produce?

Answer 5

over produce (want to reach eq.)

Question 6

how to correct neg vs pos externalities

Answer 6

neg: per unit tax
pos: per unit subsidy

Question 7

rival vs non-rival goods

Answer 7

rival: get used up as consumed
non-rival: doesn’t diminish as it’s consumed

Question 8

how will lump sum vs per unit taxes and subsidies impact ATC and MC?

Answer 8

lump sum tax: increase ATC
per unit tax: increase ATC and MC

lump sum subsidy: decrease ATC
per unit subsidy: decrease ATC and MC

Question 9

Gini coefficient

Answer 9

Based on Lorenze curve:
A/(A+B)

a lower coefficient means more equal

Question 10

Progressive vs regressive tax

Answer 10

Pro: higher % for rich than poor (ex: US income tax)

Regressive: lower % for rich than poor (ex: sales tax)

Question 11

What are monopsonies and why do they have a MRC curve higher than the S curve?

How do they compare to perfectly competitive factor market?

Answer 11

Single buyer of labor

Compared to perf comp FM, monopsonies higher LESS and pay LESS…. this creates DWL**

As they hire more workers, they need to increase the wage for ALL workers

Question 12

Accounting vs economic proft

What is normal profit

Answer 12

Economic subtracts implicit costs (accounting only subtracts explicit)

Normal: when economic profit = 0 , meaning that implicit costs= accounting profit

Question 13

Market vs command economy

Answer 13

Market: private property rights, use prices to distribute scarce resources

Command economy: central planning, gov control, ration instead of using P to distribute scarce resources

Question 14

Using the equation TR= P x Q, how can we determine if a good is elastic vs inelastic vs unit elastic

Answer 14

ELASTIC: P decreases and TR increases (more ppl buy)

INELASTIC: P decreases and TR decreases (same ppl buy)

UNIT ELASTIC: no change

Question 15

Using the income elasticity equation, how can we determine if normal vs inferior good?

Eq= %change Q/ %change Income

Answer 15

Pos means normal good
Neg means inferior good

Question 16

Using the cross price elasticity equation, how can we determine if substitutes vs complementary goods?

Eq= %change Q/ %change P of other good

Answer 16

Pos means substitutes
Neg means complementary