Exam 3 Flashcards
Monopolistic characteristics
Relatively large number of sellers
Differentiated product
Differentiated product allows
firms to have some monopoly power and price and drives demand
Short Run Equilibrium
MR = MC
Role of advertising
influence tastes and preferences and important in product differentiation
Oligopoly characteristics (5)
- Few large producers
- Standardized or differentiated product
- Entry barriers
- Price makers
- Mutually interdependent
A situation in which individuals, firms, or any group of actors coordinate their actions to achieve a desired outcome
Collusion
Group of two or more firms that act in unison
Cartel
An outcome in which, unless the players can collude, neither player has an incentive to change his or her strategy
Nash Equilibrium
The additional revenue that is generated as result of using one more unit of a variable resource
Marginal Revenue Product
Marginal Revenue Product =
Change in TR/Change in Quantity of the resource
Land =
Labor =
Capital =
Entrepreneurial Ability =
Rent
Wages
Interest
Profit/Losses
The additional cost incurred as a result of using one more unit of a variable resource
Marginal Resource Cost
Marginal Resource Cost
Change in Total Resource Cost/Change in Quantity of the resource
3 determinants for resource demand
- The demand for the good or service that resource is used to produce
- Productivity
- The price of another resource
A type of demand specific to resources that occurs as a result of the demand for the goods and services produced by those resources
Derived Demand
If demand for a good increases, what happens to the price?
The price increases
If the price of a product increases, what happens to the total revenue?
Total revenue increases
If total revenue increases, what happens to MRP?
MRP increases
If MRP increases, what happens to the demand for the resource?
The demand increases
If MRP increases, what happens to the demand for the resource?
The demand increases
Substitute-Resource price increases
resource demand increases
Other replacement resources are more expensive
switch to this resource
Substitute-Resource price decreases,
resource demand decreases
Other replacement resources are less expensive
switch away from this resource
Complementary-Resource price increases
resource demand decreases
The marginal benefit of a resource demand on the
marginal product and price
If MRP > wage
If MRP < wage
hire more workers
hire fewer workers
Changes to MRP can change
wage rate
The wage rate people can garner is a product of two variables:
productivity and price
The entrepreneur can afford to pay a MC up to the level of the
MB
The actual number of dollars received in exchange for one’s labor
Nominal Wage
The quantity of goods and services that can be bought with one’s nominal wage
Real Wage
The value of a monetary amount expressed in terms of the goods and services it can buy
Purchasing Power
Purchasing Power =
nominal wage / price
Real Wage =
nominal wage/price of output
What can change the labor supply curve?
- population growth or decline
- Immigration and migration
The shifting of jobs from within the firm to an outside company
Outsourcing
Outsourcing globally
- ability to outsource increases pool of workers
- decreases wages for domestic workers
- unemployment in the industry rises
Outsourcing winners
- Workers in country with increased labor demand
- Firm that is hiring cheaper labor
Outsourcing losers
Workers who may have lost their job or experienced wage reductions
Determinants of Wages
- Compensating differentials
- Education and human capital
- Location
- Lifestyle
- Unions
- Efficiency Wages
Occurs when workers of the same ability are not paid the same because of race, sex, age, etc.
Wage discrimination
what percent of wage differences is wage discrimination
3 to 5%
Female workers earn ___ less than males
20%
Trade balance =
total exports - total imports
A positive trade balance, when exports > imports
trade surplus
A negative trade balance, when imports > exports
trade deficit
The U.S. has had a trade ___ since 1975
deficit
Benefits of trade with other countries
- Lower cost alternatives
- Increased diversity of choices
- Access to resources
Ability to produce a good or service at a lower relative opportunity cost than another producer
Comparative Advantage
A country has a comparative advantage in the production of a good or service if its domestic opportunity cost of production is
lower than the domestic opportunity cost of other countries
A country produces products for which it has a comparative advantage
Specialization
Trade is mutually beneficial
Terms of trade
The country under consideration is a
price taker
