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Econ > End of Micro Chapters > Flashcards

End of Micro Chapters Flashcards

1
Q

Characteristics of an oligopoly

A

There are a few dominant firms
There are some barriers to entry
The product can either be homogenous or differentiated

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2
Q

Typically in an oligopoly

A

Firms can achieve long-run economic profits

P > MC, therefore the firm is not allocatively efficient

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3
Q

Unique features of an oligopoly

A

Firms are interdependent
There is competition, just among few firms
Each firm has significant market power
Firms are concerned with each others’ prices, advertising, and cost structure

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4
Q

Collusion

A

An agreement about quantities to produce or prices to charge
If oligopolies collude then they resemble a monopoly, known as a cartel
If oligopolies compete then they resemble perfect competition

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5
Q

Game theory

A

The study of how people behave in strategic situations

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6
Q

Dominant strategy

A

A strategy that is best for a player in a game regardless of the strategies chosen by other players
Assuming no collusion, players will follow their dominant strategy

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7
Q

Payoff

A

Amount of utility gained by participants

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8
Q

Matrix

A

A series of rows and columns. Combinations of these rows will produce different sums or products

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9
Q

Dominant strategy cont

A

You will not always have a dominant strategy

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10
Q

Similarities to perfect competition

A

There are many firms
No significant barriers to entry, there is ease of entry or exit
Therefore, firms can have short run profits or losses, but will not sustain them in the long run

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11
Q

Differences from PC

A 
Products are differentiated
Substitutes with unique characteristics
Excess capacity
ATC does not equal MC at Q where MC = MR
P > MC (deadweight loss exists)
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12
Q

Excess capacity

A

Monopolistically competitive firms produce on the downward sloping part of the ATC curve
ATC does not equal mc at q where mc = mr

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13
Q

Unique features

A

Demand can be very elastic due to a large number of competitors trying to create close substitutes
Firms are price-searchers
Firms almost always advertise

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14
Q

Monopolistic competition in the long run

A

If firms are making profits (P > ATC):
New firms enter market, shifting the moco’s demand left
If firms are incurring losses (P < ATC):
Firms exit market, shifting the moco’s demand right

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15
Q

Monopolistically competitive firm in the long run equilibrium

A

The change in the market shifts the firm’s demand curve (the market is not shown)
The ATC curve is tangent to the demand curve at the profit maximizing price
At q where mc = mr, p = ATC
The firm has excess capacity

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16
Q

Characteristics of PC labor markets

A

The market consists of many firms and many substitutable workers
Firms are wage takers
There are no barriers to entry/exit
Firms are demanders; households are suppliers
We will mostly assume that firms produce goods in PC product markets

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17
Q

Marginal product of labor

A

The increase in production (output) when one unit of labor is added

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18
Q

Marginal revenue product of labor (MRP)

A

MRP = MPL (marginal product of labor) x P (price of the good)

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19
Q

The firm’s demand curve and the market demand for laborers

A

The market’s demand for labor is equal to all firms in the market’s demand for labor
The firm hires workers at a wage that does not exceed their marginal revenue product of labor

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20
Q

Factors that shift the labor demand curve

A

If the curve comes from changes in MP x P

  • P: anything that changes the price of the product will shift the demand curve (ex. shift in the product market)
  • MP: anything that changes the marginal product of labor will shift the demand curve (ex. technology, supply of other factors of production)
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21
Q

Derived demand

A

Demand for labor is derived from demand for the product it is used to produce
This is the P part of MP x P

22
Q

PC labor market: supply

A

The labor supply curve reflects the trade off between work and leisure
The higher the wage, the greater the opportunity cost of leisure
Straight up diagonal line

23
Q

Equilibrium in PC labor markets

A

The equilibrium wage adjusts to balance the supply and demand of labor
The wage equals the marginal revenue product of labor
Where supply and demand cross

24
Q

Factors that shift the labor supply curve

A

Changes in tastes (willingness to work)
Changes in opportunity (substitute jobs)
Changes in the amount of workers (immigration/emigration)

25
Q

Marginal factor cost (MFC)

A

The cost of each additional factor employed by a firm. With labor, it’s:
(Change in total factor cost of laborers) / (change in laborers)
This equals wage in the PC industry

26
Q

The wage in a PC firm

A

The equilibrium wage was in the PC labor market sets the wage for the PC firm
Firms are wage takers
The equilibrium wage = MFC = supply for the firm

27
Q

Supply and demand for a firm in a PC labor market

A

Demand is equal to MRP
You maximize profit/minimize costs where MFC = MRP
Hire workers until MFC = MRP

28
Q

Monopsony

A

A firm that is the only buyer in the market

29
Q

The graph of a monopsony

A

PC firm: S = MFC
Monopsony: S < MFC
Monopsonies also profit maximize at MFC = MRP
MFC deviates from supply

30
Q

Monopsony vs PC labor market

A

A monopsony, when compared to a PC labor market:

  • wage is lower
  • quantity of workers hired is lower
31
Q

Minimum wage in a PC labor market

A

Minimum wage acts as a binding price floor in PC labor markets
Gap between demand and supply is unemployment

32
Q

Average product

A

Total output / total variables input (laborers)

33
Q

AP vs MP

A

The MP curve eventually decreases because of DMR (diminishing marginal returns)
The marginal product curve intersects the average product curve at its maximum

34
Q

Economic rent

A

The positive difference between the actual payment made for a factor of production (such as land, labor, or capital) to its owner and the payment level expected by the owner, due to its exclusivity or scarcity
When factors of production are paid more based on perceived value from an owner/proprietor/businessman

35
Q

Monopsony graph

A

Wage lower quantity lower

Supply, MFC deviates above, demand

36
Q

Externality

A 
The uncompensated impact of one person's or firm's actions on a bystander
Positive externality (known as external benefit, ex. education)
Negative externality (known as external cost, ex. pollution)
37
Q

Marginal private cost

A

The cost of producing the good to private producers

Supply with no externalities

38
Q

Marginal private benefit

A

Demand without externalities

39
Q

Marginal social cost (msc)

A

The cost to society of producing one additional unit of a good
MSC = marginal private cost (supply curve) + externality

40
Q

Marginal social benefit (MSB)

A

The utility of all consumers when one receives a good

MSB = marginal private benefit (demand curve) + externality

41
Q

Market with a negative externality

A 
Costs to society are higher 
MSC > MPC
MSC > MSB
EQ Q is too high
Can be corrected with a tax on producers
Deadweight loss
42
Q

Market with a positive externality

A 
Society is missing out on benefits
MPB < MSB
MSC < MSB
EQ Q is too low
Can be corrected with a subsidy for consumers
Deadweight loss
43
Q

Deadweight loss on the graph of an externality

A

Negative externality can’t attack demand
Positive externality—subsidize so can produce to meet demand, D = greater
DWL exists in the presence of the externality. Taxation/subsidy removes DWL because producing at socially optimal

44
Q

excludable

A

people can be prevented from obtaining a good

45
Q

rival

A

only one person can consume a good at a time

46
Q

private good

A

goods that are excludable and rival

47
Q

common resource

A

a good that is not excludable, but is rival

48
Q

quasi-public good/natural monopoly

A

a good that is non-rival but excludable

49
Q

public good

A

non-rival and non-excludable
marginal cost of providing one more of a public good is zero
marginal benefit of consuming public goods is usually greater than the marginal cost due to positive externalities created by the consumption of the goods
therefore, government doesn’t mind subsidizing firms to produce these goods

50
Q

free rider

A

someone who benefits from a good and does not pay for it

Econ (14 decks)

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