Chapter 18

Question 1

What is an oligopoly

Answer 1

A market where a few sellers supply similar or identical products

• have high barriers
• have control over price

Question 2

What are the three components of a oligopoly

Answer 2

1. Price leadership
2. Non-colluding (can either match price or ignore change)
3. Colluding
   - includes cartels

Question 3

What is game theory

Answer 3

Situations where someone is making a decision so they must consider how others will respond to their decision

Question 4

What is a duopoly

Answer 4

An oligopoly market with only two sellers

Question 5

What are cartels

Answer 5

They choose the total quantity supplied for the market and how much each business will produce

Question 6

What is a Nash equilibrium

Answer 6

When people/firms make decisions simultaneously and have no incentive to change

Question 7

What is the output effect

Answer 7

Selling one more unit increases profit since the price is above the marginal cost

Question 8

What is the price effect

Answer 8

Selling one more unit increases the market quantity supplied, which will reduce the price of cell phone plans and reduce the profits on all of the other cell phone plans that were sold

Question 9

What is the prisoners dilemma

Answer 9

When people do not cooperate even though it would make everyone better off