Final Exam

Question 1

a market structure with many firms selling products that are substitutes but different enough that each firm’s demand curve slopes downward; firm entry is relatively easy

Answer 1

monopolistic competition

Question 2

the difference between a firm’s profit-maximizing quantity and the quantity that minimizes average cost; firms with excess capacity could reduce average cost by increasing quantity

Answer 2

excess capacity

Question 3

a market structure characterized by so few firms that each behaves interdependently

Answer 3

oligopoly

Question 4

an oligopoly that sells a commodity, or a product that does not differ across suppliers, such as an ingot of steel or a barrel of oil

Answer 4

undifferentiated oligopoly

Question 5

an oligopoly that sells products that differ across suppliers, such as automobiles or breakfast cereal

Answer 5

differentiated oligopoly

Question 6

an agreement among firms to increase economic profit by dividing the market and fixing the price

Answer 6

collusion

Question 7

a group of firms that agree to coordinate their production and pricing decisions to earn monopoly profit

Answer 7

cartel

Question 8

a firm whose price is matched by other firms in the market as a form of tacit collusion

Answer 8

price leader

Question 9

an approach that analyzes oligopolistic behavior as a series of strategic moves and countermoves by rival firms

Answer 9

game theory

Question 10

a game that shows why players have difficulty cooperating even though they would benefit from cooperation

Answer 10

prisoner’s dilemma

Question 11

in game theory, the operational plan pursued by a player

Answer 11

strategy

Question 12

in game theory, a table listing the payoffs that each player can expect from each move based on the actions of the other player

Answer 12

payoff matrix

Question 13

in game theory, the outcome achieved when each player’s choice does not depend on what the other player does

Answer 13

dominant-strategy equilibrium

Question 14

a market with only two producers; a special type of oligopoly market structure

Answer 14

duopoly

Question 15

a situation in which a firm, or a player in game theory, chooses the best strategy given the strategies chosen by others; no participant can improve his or her outcome by changing strategies evan after learning of the strategies selected by other participants

Answer 15

Nash equilibrium

Question 16

in game theory, a strategy in repeated games when a player in one round of the game mimics the other player’s behavior in the previous round; an optimal strategy for getting the other player to cooperate

Answer 16

tit-for-tat

Question 17

a type of game in which a Nash equilibrium occurs when each player chooses the same strategy; neither player can do better than matching the other player’s strategy

Answer 17

coordination game

Question 18

the expansion of a firm into stages of production earlier or later than those in which it specializes, such as a steel maker that also mines iron ore

Answer 18

vertical integration

Question 19

a firm buys inputs from outside suppliers

Answer 19

outsourcing

Question 20

area of specialty; the product or phrase of production a firm supplies with greatest efficiency

Answer 20

core competency

Question 21

the notion that there is a limit to the information that a firm’s manager can comprehend and act on

Answer 21

bounded rationality

Question 22

average costs decline as a firm make a range of different products rather than specializes in just one product

Answer 22

economies of scope

Question 23

the plight of the winning bidder who overestimates an asset’s true value

Answer 23

winner’s curse

Question 24

one side of the market has better information about the product than does the other side

Answer 24

asymmetric information

Question 25

one side of the market knows more than the other side about product characteristics that are important to the other side

Answer 25

hidden characteristics

Question 26

those on the informed side of the market self-select in a way that harms those on the uninformed side of the market

Answer 26

adverse selection

Question 27

one side of an economic relationship can do something that the other side cannot observe

Answer 27

hidden actions

Question 28

the agent's objectives differ from those of the principal's, and one side can pursue hidden actions

Answer 28

principal-agent problem

Question 29

a person or firm who hires an agent to act on behalf of that person or firm

Answer 29

principal

Question 30

a person or firm who is supposed to act on behalf of the principal

Answer 30

agent

Question 31

a situation in which one party, as a result of a contact, has an incentive to alter their behavior in a way that harms the other party to the contract

Answer 31

moral hazard

Question 32

the idea that offering high wages attracts a more talented labor pool and encourages those hired to perform well so as to keep their jobs

Answer 32

efficiency wage theory

Question 33

using a proxy measure to communicate information about unobservable characteristics; the signal is more effective if more-productive workers find it easier to send than do less-productive workers

Answer 33

signaling

Question 34

the process used by employers to select the most qualified workers based on observable characteristics such as a job applicant's level of education and course grades

Answer 34

screening

Question 35

an approach that borrows insights from psychology to help explain economic choices

Answer 35

behavioral economics

Question 36

a good such as ocean fish that is rival in consumption but non payers cannot be excluded easily

Answer 36

open-access good

Question 37

because a person cannot be easily excluded from consuming a public good, some people may try to reap the benefits of the good without paying for it

Answer 37

free-rider problem

Question 38

under certain conditions, the preferences of the median, or middle, voter will dominate other preferences of all other voters

Answer 38

median-voter model

Question 39

a stance adopted by voters when they realize that the cost of understanding and voting on a particular issue exceeds the benefit expected from doing so

Answer 39

rational ignorance

Question 40

legislation that involves widespread costs and widespread benefits—nearly everyone pays and nearly everyone benefits

Answer 40

traditional public-goods legislation

Question 41

legislation with concentrated benefits but widespread costs

Answer 41

special-interest legislation

Question 42

special-interest legislation with narrow geographical benefits but funded by all taxpayers

Answer 42

pork-barrel spending

Question 43

legislation with widespread benefits but concentrated costs

Answer 43

populist legislation

Question 44

legislation that confers concentrated benefits on one group by imposing concentrated costs on another group

Answer 44

competing-interest legislation

Question 45

an expression used to describe market activity that goes unreported either because it is illegal or because those involved want to evade taxes

Answer 45

underground economy

Question 46

government agencies charged with implementing legislation and financed by appropriations from legislative bodies

Answer 46

bureaus

Question 47

a resource in fixed supply, such as crude oil or coal

Answer 47

exhaustible resource

Question 48

a resource that regenerates itself and so can be used indefinitely if used conservatively, such as properly managed forest

Answer 48

renewable resource

Question 49

unrestricted access to a resource results in overuse

Answer 49

common-pool problem

Question 50

occurs when the relationship between the output rate and the generation of an externality is fixed; the only way to reduce the externality is to reduced the output

Answer 50

fixed-production technology

Question 51

the sum of the marginal private cost and the marginal external cost of production or consumption

Answer 51

marginal social cost

Question 52

occurs when the amount of externality generated at a given rate of output can be reduced by altering the production process

Answer 52

variable technology

Question 53

the sum of the marginal private benefit and the marginal external benefit of production or consumption

Answer 53

marginal social benefit

Question 54

as long as bargaining costs are low, an efficient solution to the problem of externalities is achieved by assigning property rights to one party or the other, it doesn't matter which

Answer 54

Coase theorem

Question 55

an approach that required polluters to adopt particular technologies to reduce emissions by specific amounts; inflexible regulations based on engineering standards that ignore each firm's unique ways of reducing pollution

Answer 55

command-and-control environmental regulations

Question 56

an approach that offers each polluter the flexibility to reduce emissions as cost-effectively as possible, given its unique cost conditions; the market for pollution rights is an example

Answer 56

economic efficiency approach

Question 57

the process of converting waste products into reusable material

Answer 57

recycling

Question 58

a curve showing the percentage of total income received by a given percentage of recipients whose incomes are arrayed from smallest to largest

Answer 58

Lorenz curve

Question 59

the middle income when all incomes are ranked form smallest to largest

Answer 59

median income

Question 60

the middle wage when wages of all workers are ranked from lowest to highest

Answer 60

median wage

Question 61

benchmark level of income computed by the federal government to track poverty over time; initially based on three times the cost of a nutritionally adequate diet

Answer 61

U.S. official poverty level

Question 62

government programs designed to help make up for lost income of people who worked buy are now retired, unemployed, or unable to work because of disability or work-related injury

Answer 62

social insurance

Question 63

social insurance program providing health insurance for short-term medical care to older Americans, regardless of income

Answer 63

Medicare

Question 64

welfare programs that provide money and in-kind assistance to the poor; benefits do not depend on prior contributions

Answer 64

income assistance programs

Question 65

a program in which, to be eligible, an individual's income and assists must not exceed specified levels

Answer 65

means-tested program

Question 66

an income assistance program funded largely by the federal government but run by the states to provide cash transfer payments to poor families with dependent children

Answer 66

Temporary Assistance for Needy Families (TANF)

Question 67

an income assistance program the provides cash transfers to the elderly poor and the disable; a uniform federal payment is supplemented by transfers that vary access states

Answer 67

Supplemental Security Income (SSI)

Question 68

a federal program that supplements the wages of the working poor

Answer 68

earned-income tax credit

Question 69

an in-kind transfer program that provides medical care for poor people; by far the most costly welfare program

Answer 69

Medicaid

Question 70

an in-kind transfer program that offers low-income households vouchers redeemable for food; benefit levels vary inversely with household income

Answer 70

SNAP

Question 71

supplements retired income to those with a record of contributing to the program during their working years; by far the largest government redistribution program

Answer 71

Social Security