Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

G202 > Exam 2 > Flashcards

Exam 2 Flashcards

1
Q

Market power

A

When firms are able to restrict competition to keep prices above marginal cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Monopoly

A

100% market power

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Strategy to gain market power

A

Limit competition (sustain any factors that do this)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Market strategies to restrict competition:

A
  • Guarding trade secrets
  • Control of essential resource
  • Exclusive contracts (Coke on campus)
  • Collusion (form a cartel, agree on price, act as a monopoly)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Non-market strategies to restrict competition

A
  • Patent or trademark protection
  • Trade regulations
  • Government licensing
  • Govt or NGO certification
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Optimal sales target

A

Where marginal revenue equals marginal cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

If MR > MC…

A

Increase sales, firm could make a profit by selling one more unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

If MC > MR…

A

Avoid sales, firm will lose money selling one more unit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Optimal price

A

Given optimal sales target, price is found as markup over cost where markup factor depends on demand for the product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Firm with market power sets price (1) and output (2) than efficient levels

A

(1) - higher, (2) - lower, too few units being produced

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Perfect price discrimination:

A

Each consumer is charged a price equal to her willingness to pay

  • No social inefficiency, but all surplus goes to producer
  • Example: dutch auction
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Imperfect price discrimination

A

Groups of consumers are charged different prices

  • Profits increased relative to single price but not as high as perfect
  • Consumer surplus decreased but not equal to 0
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Under imperfect, profit and socially efficient are…

A

Different. There is a gap between the profit and socially efficient max because of the step nature of imperfect

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Players

A

Decision makers within the game

Examples: firms, government, interest groups

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Strategies

A

Decision choices

Examples: price, products, advertising, campaigning, lobbying, regulation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Payoffs

A

Outcomes of the decision choices (in terms of profits or losses usually) –> politics, probability of winning

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Dominant strategy

A

A strategy that results in the highest payoff for a player regardless of what strategy their rival plays

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Secure strategy

A

In absence of a dominant strategy, play the strategy that guarantees the highest payoff given the worst payoff

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Think like your Rivals

A

In absence of a dominant strategy, look at the game from your rivals perspective

20
Q

Nash equilibrium

A

A condition describing a set of strategies in which no player can improve her payoff by unilaterally changing her strategy given her rivals strategy

21
Q

Extensive-form Game

A

Players, available information, available strategies, resulting payoffs and the sequence of moves

22
Q

Subgame perfect equilibrium

A

A set of strategies that allows no player to improve his own payoff at any stage of the game by changing strategies -> work backwards from your rivals strategy

23
Q

Role of government:

A

-To promote competition

24
Q

Antitrust policies

A

US has enacted to make it illegal to attempt to monopolize a market
-Department of Justice uses industry sales concentrations as an indication of the level of competition

25
Q

4-Firm Concentration Ratio (C4)

A
  • The fraction of the industry sales that goes to 4 largest firms in the industry
  • A C4 closer to 1 means uncompetitive industry (sum all, 1 means lacks competition)
26
Q

Herfindahl-Hirshman Index (HH)

A
  • Sum of squared market shares of firms in an industry multiplied by 10,000
  • HH above 2500 signals uncompetitive industry (FTC will look into it over this number)
27
Q

When to export?

A
  • When the world price is above the domestic price, the domestic industry has the comparative advantage
  • Domestic industry exports to world
28
Q

When economy opens up border…

A

TAKES price, does not make price

29
Q

Exports enhance welfare of domestic country because:

A

Producer surplus increases more than consumer surplus decreases

30
Q

When TAKES world price…

A

Excess supply, more willing to ship to the rest of the world, whole area gained from trade

31
Q

When to import:

A

When the world price is below the domestic price, foreign producers have the comparative advantage
-Domestic industry imports from the world

32
Q

Imports enhance the welfare of the domestic country because:

A

Consumer surplus increases more than producer surplus decreases

33
Q

When Imports…

A

Takes lower world price, shortage in domestic supply so must import, area gained by trade

34
Q

Tariff

A

A tax that is placed on imports

-Directly affects the domestic price charged on imports

35
Q

Tariffs result in:

A
  • Higher domestic prices
  • Under-consumption in the domestic market
  • Over-production by the domestic producers
  • Less imports to the domestic market
36
Q

Quota

A

Maximum quantity placed on imports, indirectly affects the domestic price by creating a situation of excess demand

37
Q

Quotas result in:

A
  • Less imports to the domestic market
  • Under-consumption in the domestic market
  • Over-production by domestic producers
  • Higher domestic prices
38
Q

Tariffs v. quotas

A
  • Tariffs raise revenue, quotas do not

- If quotas are combined with licensing fee, can raise revenue

39
Q

Which can cause more inefficiency?

A

Quotas: If licensing fee does not take away from price premium, foreign producers will have an incentive to lobby –> spend resources which leads to more inefficiency

40
Q

Why do firms lobby for license?

A

When entering a market where there is a quota, the price is higher than the world price so there is a potential for foreign gains

41
Q

If fee = (Pq - Pw)

A

Government revenue

42
Q

If fee < (Pq - Pw)

A

Split between foreign gains and government revenue

43
Q

Less restriction means:

A

Less inefficiency

44
Q

Why do nations adopt trade restrictions?

A
  • National Defense
  • Retaliation against dumping (selling lower than production costs in foreign markets)
  • Infant Industry argument
  • Special interests influences
45
Q

FG =

A

[(Pq - Pw) - Fee] * imports

Less foreign gain, less inefficiency

46
Q

Do trade restrictions save jobs?

A

Overall, no. Imports and exports linked through income creation, import restrictions raise prices on inputs, and jobs will be lost in industries that rely on cheap imported material.

G202 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions