Lecture 5 to midterm Flashcards

1
Q

What does Monopoly Rent refer to?

A

The profits a monopoly makes above MC.

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2
Q

What happens when we add more members to a consumer co-op?

A

The demand curve shifts out
CS gains and loses so depends on the curve what the final outcome is
Price increases (as does Q*)
Q old members buy decreases
Profit changes but more members to make patronage payments to.

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3
Q

Are there profits at optimal membership?

A

no

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4
Q

Where do we find optimal membership in a producer co-op?

A

S = NARP = MVP

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5
Q

Is aggregate PS higher or lower with optimal membership?

A

Aggregate PS is lower, but per-unit PS is at it’s maximum.

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6
Q

How is MW captured when a co-op is at it’s optimal membership?

A

All MW is captured through regular transactions because there is no profit where NARP = MVP or where AC = MC

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7
Q

Define fair trade

A

Trade between companies in developed countries and producers in developing countries in which fair prices are paid to the producers.

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8
Q

What are the three main points of fair trade?

A
  1. members must be small-scale producers
  2. democracy
  3. enabling strong producer organizations
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9
Q

Why are so many fair trade producers in co-ops?

A

The values happen to align well.

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10
Q

What are the fees that fair trade purchasers pay used for?

A
  • advertising
  • evaluating new producer group applicants
  • educating producer groups
  • offices and staff
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11
Q

What does FLO stand for?

A

Fairtrade Labelling Organization

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12
Q

Who does FLO work with?

A

Producer co-ops
international traders
roasting companies

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13
Q

What is “National Initiative”?

A

The FLO member who deals with consumers of fair trade.

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14
Q

Is the consumer country % of revenues higher or lower with fair trade?

A

Higher! But the producer still gets a larger $ amount.

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15
Q

Does the extra cost of a fair trade product generally get to the producer?

A

Some but most tends to stay at the retailer lever.

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16
Q

Are fair trade and regular coffee substitutes?

A

Yes - not perfect, but very much substitutes

17
Q

Why does it matter that Fair Trade coffee and regular coffee are substitutes?

A

Because regular coffee is being used as a loss leader, so that means less Fair Trade coffee gets sold, which limits the number of producers the Fair Trade system can take on.

18
Q

Is it fair to assume that a co-op is a price-taker in other market levels to which it’s members are operating?

A

NO! This is a general assumption, but in reality if a co-op is the only buyer or seller of a product, it’s probably the only one of the opposite end too.

19
Q

Should a co-op exert market power in the market opposite to where it’s members operate?

A

NO! this means they’ll actually have to limit interactions with members, and the prices they’ll be able to offer members will be less attractive.

20
Q

Are there positive externalities from co-ops?

A

Yes! When they work to maximize member welfare, they actually don’t exert market power in the other levels of market they’re involved with, which benefits the other players in those markets.

21
Q

Why would co-op members get more utility from consumer surplus than from patronage payments?

A

CS contributes to cashflow.
Patronage payments generally go into savings because they can’t be guaranteed (timing, amount, or if they get distributed at all or not for many years)

22
Q

What are the five points of contention within a traditional co-op according to Cook? Are there more points of contention?

A
  1. Free Rider problem
  2. Horizon problem
  3. Portfolio problem
  4. Control problem
  5. Influence costs problem
    ** not mentioned by Cook: pricing strategies problem
23
Q

How do we find optimal membership in a consumer co-op?

A

D = MC = AC