Final Flashcards
Increase in excise tax…
Initial tax rate very high
Decrease in tax revenue
Similarities between perfectly competitive industries and monopolistically competitive industries
Economic profits are zero
Many producers
Free entry and exit
Properties of PPF curve
Straight line, downward sloping
Individuals can internalize externalities…
Among themselves if transaction cost is low
A monopolistically competitive firm produces…
Differentiated products
Demand for good is income elastic if..
The income elasticity of demand for that good is greater than one
Nash equilibrium
An outcome that is the best decision for both parties
No player benefits by switching their strategy
Dominant strategy
Player will always play a strategy regardless of opponent’s move
Sometimes there isn’t one in game theory
Monopolistic competition
Many producers and consumers
Few barriers to entry and exit
Producers have some degree of control
Differentiated goods
Long run profits are zero
Pigouvian tax
Designed to reduce external costs
Compared with a perfectly competitive industry, a monopolist…
Charges a higher price
When a good is subject to a network externality
It exhibits positive feedback and if large numbers of people buy it, other people become more likely to buy it too
Second hand smoke is a negative externality because…
Imposes external costs on family members
Negatively affects unborn children’s health when pregnant women smoke
In oligopolistic industries
How competitive the industry is can be measured by the Herfindhal-Hirshmann index
Sources of comparative advantage
Differences in climate, technology and factor endowment
Strategy of tit for tat
Involved playing cooperatively at first, then following the other player’s moves
Rewards good behavior and punished bad behavior
Can lead to successful tacit collusion if all firms choose this same strategy
Demand is unit elastic if
Changed in price have no effect on total revenue
Long run average total cost curve
Is the average total cost when fixed cost had been chosen to minimize average total cost for each level of output
US trends of income inequality
Rising inequality over past 30 years
Stable inequality for about 35 years after WW2
Falling inequality during the 1930s and 40s
Disparity of US healthcare spending
Suffers from serious inefficiencies
Private insurance companies expend resources in marketing and try to identify high risk patients
Major US non means-tested welfare state programs
Social security and Medicare
Deadweight loss created by tax is smaller if
The demand curve is more inelastic
Gini coefficient
Summarizes a country’s level if income inequality based on how unequally income is distributed across quintiles
Coase theorem
Even in the prescience of externalities an economy can always reach an efficient solution as long as transaction costs are sufficiently low
