Chapter 1

Question 1

Industrial organization

Answer 1

Concerned with the workings of markets and industries, in particular the way firms compete with each other. “ economics of imperfect competition

Question 2

Market power

Answer 2

The ability to set prices above cost, specifically above incremental or marginal cost, that is, the cost of producing one extra unit

Question 3

Allocative efficiency

Answer 3

Resources be allocated to their most efficient use

Question 4

Rent seeking

Answer 4

Unproductive resources spend by firms in an attempt to influence policy makers

Question 5

Chicago school statement

Answer 5

Market power is never very significant. It is not that market power prompts government intervention, but government intervention creates market power, protecting the interest of firms and not those of consumers

Question 6

Industrial policy

Answer 6

Different goal than regulation and antitrust, which promote competition, it strengthens the market position of a firm/industry, namely with respect to foreign firms

Not favoured by economists because it amounts to governments picking winners amongst industries and firms

Question 7

Personal pricing

Answer 7

Personalised Pricing describes the analysis of each individual customer’s willingness to pay and the adaption of the price to these

Furthermore, it is most often applied through a basis price and a personalised discount, because consumers dislike the “unfairness” of different prices for the same product.