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Laurin > Economics > Flashcards

Economics Flashcards

1
Q

Elastic Demand (2)

A

Price changes cause a large change in quantity demanded.

The flatter curve is more elastic

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2
Q

Inelastic Demand

A

Price changes cause little change in quantity demanded.

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3
Q

Consumer Surplus

A

Price above the equilirbium price what consumers would have been willing to pay

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4
Q

Price elasticity formula

A

Percentage change in quantity demanded / Percentage change in price

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5
Q

Unit elastic

A

Elasticity is exactly 1

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6
Q

Less elastic demand (5)

A
  • Fewer substitutes
  • Short run (less time)
  • Categories of product
  • Necessities
  • Small budget share
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7
Q

More elastic demand (5)

A
  • More substitutes
  • Long run (more time)
  • Specific brands
  • Luxuries
  • Large budget share
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8
Q

Midpoint method

A

Takes the average in case the price and quantity change multiple times

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9
Q

Less elastic supply (4)

A
  • Difficult to increase production at constant unit cost
  • Large share of market for inputs
  • Global supply
  • Short run
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10
Q

More elastic supply: (4)

A
  • Easy to increase production at constant unit cost
  • Small share of market for inputs
  • Local supply
  • Long run
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11
Q

Who carries the burden of the tax

A

The less elastic side of the market bears the larger burden

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12
Q

Effects of price ceilings (5)

A
  1. Shortages
  2. Reductions in quality
  3. Wasteful lines due to price ceiling
  4. Lost gains from trade due to price ceiling
  5. Misallocation/random of resources of price ceiling (not to the most profitable asset)
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13
Q

Price floors (4)

A
  1. Surpluses, minimum wage creates unemployment among unskilled workers
  2. Lost gains from trade (dead-weight loss), firms might reallocation or become less competitive.
  3. Wasteful increases in quality, increase quality instead of lowering prices in order to stay competitive
  4. Misallocation of resources
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14
Q

Arguments against international trade (4)

A
  1. Trade reduces domestic jobs
  2. Its wrong to trade with countries that use child labour
  3. Gate keep jobs for national security
  4. Keep some jobs domestic for “economic spillovers” for other jobs
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15
Q

Social cost:

A

private cost + external cost

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16
Q

Pigouvian taxes

A

tax to reduce the output of a harmful externality

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17
Q

Coase theorem (3)

A

-> The market can handle externalities, or at least create a market when:

  • Transactions costs are low
  • Property rights are clearly defined
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18
Q

Government solutions for externality problem (2)

A

A. Command and control; control must be cheap and government needs full information about externality.
B. Tradeable allowances

19
Q

Maximum profit is reached when

A

MR = MC

20
Q

Monopolist is a firm with market power:

A

P > MC

21
Q

Sources of market power: (5)

A
  • Patents
  • Laws preventing entry of competitors
  • Economies of scale
  • Hard to duplicate inputs
  • Innovation
22
Q

Why cartels collapse: (3)

A
  1. Cheating by the cartel members
  2. New entrants and demand response
    - Control over a key resource or input
    - Economies of scale
    - Network effects
    - Government barriers
  3. Government prosecutions
23
Q

Network goods: (3)

A
  1. Usually sold by monopolies or oligopolies
  2. The “best” product does not always win
  3. Competition is “for the market” instead of “in the market”
24
Q

Nash equilibrium (def)

A

To find the Nash equilibrium, we look for a strategy combination where neither player (Christie’s or Sotheby’s) has an incentive to unilaterally change their strategy.

25
Q

Contestable market

A

if a competitor could realistically enter and take business from the current leader. Actual entry isn’t required—just the possibility. This potential competition keeps even dominant firms disciplined, as the threat of new entrants acts as a competitive force.

26
Q

Monopolistically

A

refers to a market structure where many firms sell similar but differentiated products, allowing each firm some degree of market power.

27
Q

Monopolistic competition (3)

A
  1. Many sellers
  2. Free entry and exit
  3. Downward sloping demand curve because of product differentiation
28
Q

Product differentiation: (4)

A
  • Products can be differentiated along any dimension that people care about
  • Differentiated products are often highly advertised
  • Firms want consumers to perceive their products as different and better because that increases their market power
  • Examples: restaurants, cereal, clothing, shoes, service industry in large cities
29
Q

Marginal product labor

A

Marginal Revenue Increase by additional worker

30
Q

Asymmetric information:

A

One party involved in a business transaction is missing important information.

31
Q

Moral hazard

A

Hidden ACTIONS to take advantage in a immoral way

32
Q

Adverse Selection

A

Hidden INFORMATION/ characteristics

  • Unhealthy people are more likely to want health insurance
33
Q

Overcoming Moral Hazard (3)

A
  • Can be overcome by splitting tasks/ incentives; Real estate agent/ inspector
    (1) Overcome by providing more information for both parties
    (2) Overcome by decreasing incentive to exploit the information advantage
34
Q

Indifference curve

A

Combinations of two goods that provide a consumer with the same level of satisfaction or utility

35
Q

Income effect

A

Change in consumption caused by the change in purchasing power from a price change

36
Q

Substitution effect

A

Change in consumption caused by a change in relative prices holding the consumer utility level constant

37
Q

If substitution effect dominates

A
  • New “tanget point” moves to the RIGHT
  • Supply curve is upwards sloping
38
Q

if the income effect dominates

A
  • New “tangent point” moves to the LEFT
  • Supply curve is downwards sloping
39
Q

A signal

A

Is an expensive action that is taken to reveal information

40
Q

Long run price equilibrium monopolistic market

A

P = AC

41
Q

Long run price equilibrium perfectly competitive market

A

P = MC

42
Q

What about the relations between price and MR of a monopoly in an unregulated market

A

P > MR

43
Q

Cobweb model

A

If there is a delay in how much to produce and how much to sell (like farming)

44
Q

Cartel Solution

A

If the two firms cooperate (as a cartel), their goal is to maximize total revenue

Laurin (5 decks)

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