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ECON 101 > Final exam > Flashcards

Final exam Flashcards

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1
Q

Characteristics of oligopoly

A
  1. few large firms
  2. differentiated or identical products
  3. significant entry barriers
  4. firms mutually interdependent
  5. significant control over P
  6. economies of scale
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2
Q

examples of oligopoly

A

automobile companies, airlines, smartphones, lawnmowers, steel, aluminum

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3
Q

Kinked demand curve

A

if p is increased, competitors will not follow suit (so will be on D2)- rivals DO NOT react

if p is lowered, competitors will also lower their P (so will be on D1) - rivals REACT

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4
Q

Oligopoly equilibrium

A

MR = MC

  1. MR is discontinuous
    - get P only from D curve
  2. p and output are rigid
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5
Q

oligopoly market

A
  • price wars (airlines)
  • collusion = illegal
  • price leadership (leader / follower model)
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6
Q

game theory

A 
one firm is dependent on another firm's behavior in making decisions
- mutually independent
- duopoly
- dominant strategy
- nash equilibrium
Box thing
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7
Q

dominant strategy

A

the best strategy irrespective of the action of your rival

ex: spotify charge lower P of $9.99 no matter what apple does

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8
Q

price matrix

A
  • price guarantee
  • coupons
  • price itself will be higher
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9
Q

monopoly characteristics

A
  • single firm
  • unique product, no close substitutes
  • e < 1, steep D curve
  • entry barriers (very difficult - patents, trademarks, etc.)
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10
Q

reasons for monopoly

A
  1. legal and government
  2. geographical
  3. control over key resources
  4. network externalities
  5. natural monopoly
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11
Q

monopoly equilibrium

A 
MR= MC
when P > MC:
1. resources not allocated efficiently
2. consumer exploitation
3. monopolist continues to earn supernormal profits even in long run due to entry barriers
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12
Q

long run profits for a monopoly

A

because of barriers to entry, no new firms enter, so there is NO distinction between short-run and long-run for monopoly (nothing will change in long-run)

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13
Q

PC vs. Monopoly

A

PC:

  1. graph
  2. output is higher and P is lower
  3. Under PC, P = MC
    - no consumer exploitation; resources efficient
  4. in long run, competitive firm gets normal profits only (due to free entry and free exit)

Monopoly:

  1. Graph
  2. output is smaller and P is higher
  3. P > MC
    - possible exploitation, resource inefficiency
  4. monopolist continues to get supernormal profits even in long-run due to entry barriers
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14
Q

natural monopoly

A

situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can 2 or more firms
- public utilities - essential services
SDG & E
- AC continues to fall for a considerable range of output

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15
Q

natural monopoly equilibrium

A

MR = MC

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16
Q

Demand for labor

A

different from the demand for the final goods and services because it is a derived demand (depends on d for the good the factor produces)

17
Q

Marginal revenue product of labor (MRP)

A

change in a firm’s revenue as a result of hiring one more worker
multiply additional output produced by the product price
- curve is same as D curve for labor

18
Q

Equilibrium in labor market

A

W = MRP

profit maximizing point

19
Q

Marginal Product (MP)

A

addition made to total output by hiring one more worker

- a physical quantity

20
Q

Backward bending supply of labor

A

first a normal S curve - as W increases S increases (substitution effect)
then as W increases S decreases (income effect)

21
Q

Substitution effect

A

an increase in wage raises the opportunity cost of leisure and causes a worker to devote more time to working and less time to leisure

22
Q

Income effect

A

because leisure is a normal good, a wage increase will cause a worker to devote less time to working and more time to leisure

23
Q

absolute advantage

A

the ability to produce more of a good or service when using the same amount of resources (quantity)

24
Q

comparative advantage

A

ability to produce more of a good or service at a lower opportunity cost than competitors (cost)z

25
Q

opportunity cost

A

the highest valued alternative that must be given up to engage in an activity

26
Q

tariffs

A

a tax on imports

27
Q

effects of tariffs

A
  1. D for imported goods decreases with an increase in P
  2. Domestic companies compete better (winner)
  3. Hire more workers (employment increases)
  4. Govt. collects tariffs (winner
  5. Infant industry argument
28
Q

Quotas

A

limit on the physical quantity of imports

- smaller effect than tariff

29
Q

tariffs vs. quotas

A

tariffs:
1. tax on imports (govt gets revenue)
2. increase in P of imported good
3. work INDIRECTLY through D, S, and markets
4. Import reduction NOT predictable (depends on elasticity of D and S)
quotas:
1. limit the physical quantity (no revenue)
2. May not increase the P
3. Work indirectly (no dependence on D, S, or markets)
4. Predictable decline in imports

30
Q

infant industry

A

a justification to use tariffs, industry is:
- early stage
- small scale
- AC is higher
Give them a headstart: in 4- 5 yrs will expand Q and lower AC (become more efficient)

31
Q

World Trade Organization (WTO)

A

international organization that oversees international trade agreement

32
Q

Globalization

A

process of countries becoming more open to foreign trade and investment

33
Q

Opposition to WTO

A
  • anti globalization
  • “old fashioned” protectionism: use of trade barriers to shield domestic firms from foreign competition
  • based on saving jobs, protecting high wages, protecting infant industries, protecting national security

ECON 101 (3 decks)

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