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Microeconomics > Exam 2 review > Flashcards

Exam 2 review Flashcards

1
Q

Utility is useful in describing what?

A

A person’s preferences for one good over another

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2
Q

What does altruism describe?

A

A motive for action in which a person’s utility is increased when another’s utility increases

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3
Q

Procrastination can be seen as irrational behavior on the surface. What is this called?

A

The time inconsistency of our decision making

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4
Q

The prisoner’s dilemma is a game of strategy in which people make rational choices for what?

A

A less than ideal result for all

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5
Q

What is a dominant strategy?

A

A strategy that is the best one to follow, no matter what strategy other players choose

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6
Q

Information asymmetry is a problem when…

A

A buyer and seller have opposing incentives

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7
Q

The presence of adverse selection in a market causes…

A

-Failed transactions
-A loss of surplus
-Market failure

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8
Q

When can moral hazard happen?

A

When adverse selection is a a problem

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9
Q

What is adverse selection?

A

It results from unobserved characteristics of people or commodities

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10
Q

What is signaling?

A

Taking action to reveal one’s own private info

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11
Q

What is total revenue?

A

The quantity sold multiplied by the price paid for each unit (P x Q)

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12
Q

When economic profits are negative, accounting profits could be

A

-Positive
-Negative
-Zero

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13
Q

Economies of scale refer to returns that occur when?

A

An increase in output decreases ATC in the long run

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14
Q

For firms that sell one product in a perfectly competitive market, how is average revenue calculated?

A

total revenue divided by total output

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15
Q

For firms that sell one product in a perfectly competitive market, what is average revenue equal to?

A

-is equal to marginal revenue
-is equal to the market price

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16
Q

For a firm in a perfectly competitive market with increasing marginal cost, if it produces where marginal
cost exceeds marginal revenue:

A

it should cut back production to increase profits

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17
Q

when demand increases in a perfectly competitive market, what happens to price in the short run?

A

price increases

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18
Q

when demand increases in a perfectly competitive market, what happens to supply in the long run?

A

supply increases

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19
Q

a natural monopoly is a market in which a single firm:

A

can produce, at a lower cost than multiple firms, the entire quantity of output demanded

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20
Q

A monopoly is constrained by what?

A

demand

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21
Q

The revenue curves the monopoly sees are different from what a perfectly competitive firms sees because

A

the marginal revenue curve is downward sloping instead of flat

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22
Q

perfect price discrimination does what?

A

-eliminates CS
-maximizes PS
-creates DWL

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23
Q

If successive units of a good are consumed, the marginal utility gained typically:

A

decreases at different rates for different people

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24
Q

What does a budget constraint show?

A

The goods that all cost the same amount

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25
Q

When the trade-offs you face are determined by the choices someone else will make, behaving rationally involves:

A

-behaving strategically
-taking into consideration the actions of others
-acting in your own self interest

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26
Q

In the prisoner’s dilemma game:

A

-the players can not reach to socially optimal point
-a dominant strategy exists for both players
-a noncooperative equilibrium can be predicted

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27
Q

what is it called when a person/company has to make a decision in a previous game

A

sequential game

28
Q

what happens to variable costs when a firm produces nothing

A

the variable costs = zero

29
Q

how do you calculate economic profits?

A

total revenue minus all costs (explicit and implicit)

30
Q

Where does marginal cost cross the average total cost curve

A

At the min point of the ATC

31
Q

Marginal cost of output is what?

A

The additional cost a firm will incur by producing one additional unit of output

32
Q

What is an essential characteristic of a perfectly competitive market?

A

Buyers and sellers have no control over the market

33
Q

For firms that sell one product, what happens to the market price?

A

-is constant, regardless of quantity sold
-is equal to average revenue for a firm
-is equal to marginal revenue for a firm

34
Q

Firms in perfectly competitive markets who wish to max profits should produce where?

A

where MR=MC

35
Q

If a firm realizes that the market price has fallen below its avg total cost is now earning a loss, what is the best action for the firm to take in the short run?

A

produce where MC = MR to minimize losses if P > AVC

36
Q

In the long run, what happens to firms in a perfectly competitive market?

A

-produce a quantity that maximizes profits
-earn a zero economic profit
-choose the level of output that minimizes average total costs

37
Q

What happens in a monopoly?

A
  • it has no competition
    -has complete market control
    -restricts output to maximize profits
38
Q

What happens to total revenue for a monopolist as output increases?

A

It increases then decreases

39
Q

How can a monopolist maximize profits?

A

By following the same rules as a perfectly competitive firm

40
Q

In a monopolistic market, consumer surplus is ____ than in a competitive market.

A

lower

41
Q

What is moral hazard?

A

The tendency for people to behave in a riskier way to renege on contracts where they don’t face the full consequences of their actions

42
Q

when all players choose the best strat they can, given the choices of all other players, what is this an example of?

A

nash equilibrium

43
Q

first mover advantage is a typical feature of what game?

A

sequential move game

44
Q

what is the difference between one time games and repeated games?

A

in one-time games, players are more likely to defect

45
Q

what does variable cost depend on?

A

the amount of output

46
Q

what is the additional cost in producing more than one more unit of a good called?

A

marginal cost

47
Q

the marginal product of an input always does what as the quantity of that input increases?

A

it always decreases

48
Q

When does AFC always decrease

A

when quantity increases

49
Q

What can a firm change in a perfectly competitive market?

A

quantity to produce

50
Q

What is not a principle of perfect competition?

A

barriers keeping other firms from entering

51
Q

what are principles of perfect competition?

A

-both buyers and sellers are price takers
-standardized goods
-the market price is the individual firm’s demand curve

52
Q

which market has the market price and demand curve as two different curves?

A

monopoly

53
Q

what profits can firms in perfect competition earn in the short run?

A

positive profits (but not in long run)

54
Q

why is perfect competition the most efficient market structure?

A

because it has no deadweight loss

55
Q

to maximize profits, firms in perfect competition should choose a quantity where MR (blank) MC?

A

=

56
Q

if there are economic profits in a perfectly competitive market, what will happen in the long run?

A

firms will enter the market until economic profits = 0

57
Q

In the long run in perfect competition, what does the market price equal?

A

The min of the ATC

58
Q

Compared to perfect competition, monopolies produce a ___ quantity, and charge a ___ price

A

lower quantity

59
Q

in a monopoly, what does the demand curve do?

A

slopes downward

60
Q

how can the government influence monopolies?

A

-large economies of scale
-government intervention
-predatory tactics

61
Q

what firm can produce the entire market demand more efficiently than many firms can?

A

natural monopoly

62
Q

what are ways that monopolistically competitive firms can make profits in the short-run?

A

product differentiation and advertising

63
Q

what happens to a monopolistically competitive firm’s demand in the long-run?

A

demand decreases until price = ATC and profit = 0

64
Q

in the short run, firms in monopolistic competition act similarly to what other market?

A

monopolies

65
Q

what is it called when two firms make an agreement to collude with a punishment if one defects?

A

commitment strategy

66
Q

if two duopolists collude to maximize profits, what price would they charge?

A

the same price as a monopolist would

Microeconomics (19 decks)

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