Brainscape's Knowledge GenomeTM

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


See full index

Econ 142 > Exam 5 (13, 14, 15, 16, 17) > Flashcards

Exam 5 (13, 14, 15, 16, 17) Flashcards

1
Q

Why do consumers dislike monopolies?

A

because they have to pay a higher price

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

Monopoly profit comes at the expense of …

A

Consumers: CS is lower and DWL is created

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

What does the gov do to avoid DWL?

A

put in policy attempting to prevent or eliminate monopolies (antitrust policy)

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

Oligopoly (def)

A

a market that is dominated by a small number of firms

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

Oligopoly Behavior (2 options)

A
  1. Compete against each other (by picking different quantity supplied and/or price charged)
  2. Cooperate to raise each others profits (known as collusion which is illegal in the US)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How do you measure an oligopoly?

A

using the Herfindahl-Hirschman Index (HHI)

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

HHI < 1000

A

strongly competitive market

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

HHI 1000 - 1800

A

somewhat competitive market

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

HHI > 1800

A

oligopoly

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

Monopolistic competition characteristics

A
  1. Many firms **
  2. Differentiated Product
  3. Free entry and exit in the long run **
    * * = same as perfect competition
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Ex of monopolistic competition

A

restaurants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How do monopolistically competitive firms gain market power?

A

product differentiation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

3 Forms of Product Differentiation

A
  1. Differentiation by style or type
    - Chinese food vs pizza
    - sedans vs SUVs
  2. Differentiation by location
    - dry cleaner near home vs cheaper dry cleaner far away
  3. Differentiation by Quality
    - ordinary chocolate vs gourmet chocolate
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Monopolistic competition demand curve is

A

downward sloping

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

Short-run maximization of profit (monopolistic competition)

A
  1. Produce the Q at which MR = MC
  2. Set price according to D curve
    * Profit is the area between price and ATC (where quantity hits the demand curve and the ATC curve)
    * Pos. profit attracts new entrants (so it won’t last)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Long run positive profit (monopolistic competition)

A

Positive profit = new firms enter the market; new entrants means fewer customers for the original firms: Demand and MR shift left

So, in the long run profit = 0

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

Long run equilibrium (monopolistic competition)

A

new entry stops

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

Long run negative profit (monopolistic competition)

A

loss = some firms exit industry; exit of firms means more customers for the remaining firms: Demand and MR shift right

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

Anytime the ATC is above the demand curve …

A

the firm is making losses so firms will exit industry

20
Q

Anytime the ATC is tangent to D curve …

A

you know that the market is already in equilibrium

21
Q

For perfect competition, break-even point is at …

A

price = lowest point on ATC

22
Q

Long run equilibrium (monopolistic competition)

A

don’t produce at minimum cost output; firms in a mon. comp. industry produce less than the output at which avg total cost is minimized

23
Q

External cost/benefit (def)

A

uncompensated cost/benefit imposed by an individual or firm on others

24
Q

Externality (def)

A

an action that imposes an external cost or external benefit on others

25
Q

Examples of negative externalities

A
  • air and waste pollution

- texting while driving

26
Q

Examples of positive externalities

A
  • flu shot

- preserved farmland

27
Q

MSC of pollution

A

additional cost imposed on society by an additional unit of pollution

28
Q

MSB of pollution

A

additional gain to society from an additional unit of pollution

29
Q

The socially optimal amount of pollution is …

A

not zero; it is at where MSB = MSC

30
Q

Market failure

A

market equilibrium not providing the socially optimal amount of a good (pollution is an example of this)

31
Q

In a market economy w/o gov. intervention the owners of the companies decide how much pollution occurs w/o accounting for …

A

costs of pollution

32
Q

Policies for pollution

A
  1. Impose an emissions tax on polluter
    - -Pigouvian tax
  2. Impose an environmental standard
    - -polluter isn’t allowed to exceed a certain amt of pollution
  3. Introduce tradable emissions permits
33
Q

Pigouvian tax (def)

A

taxes designed to reduce external costs

34
Q

Set optimal pigouvian tax equal to …

A

MSC @ socially optimal quantity

–the pigouvian tax is a marginal cost to the polluter

35
Q

Pigouvian subsidy

A

a payment designed to encourage activities that yield external benefits

36
Q

To achieve socially optimum, set Pigouvian subsidy equal to …

A

MSB @ the optimal quantity

37
Q

Characteristics of goods

A
  1. Excludable: suppliers of the good can easily prevent people who don’t pay from using it
  2. Rival: the same unit of the good cannot be consumed by more than one person at a time
38
Q

Private Goods

A

Excludable and rival

–ex: snacks and bathroom fixtures

39
Q

Artificially scarce goods

A

Excludable and non rival

–ex: on-demand movies and computer software

40
Q

Common Resources

A

Non excludable and rival

–ex: ground water and fish in the sea

41
Q

Public goods

A

Non excludable and non rival

–ex: fire-protection and national defense

42
Q

The free-rider problem

A

individuals are unwilling to pay for a good and will take a free-ride on anyone who does pay

43
Q

With which type of good does the free-rider problem occur?

A

public goods

44
Q

If the gov provides the public good, how much should it supply?

A

a quantity where MSB = MSC

45
Q

HHI formula

A

the sum of the squares of each firm’s share of market sales

Ex: 3 firms have 60%, 25%, and 15%
HHI = 60^2 + 25^2 + 15^2 = 4450

46
Q

What is the importance of product differentiation in monopolistic competition?

A

It allows firms to charge a different price (exercise market power)

Econ 142 (5 decks)

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