Micro Econ Final

Question 1

Concentration Ratio

Answer 1

the percentage of the market’s total output supplied by its four largest firms.

Question 2

the higher concentration ratio….

Answer 2

less competition

Question 3

Oligopoly

Answer 3

market structure with high concentration ratios

Question 4

HHI

Answer 4

commonly accepted measure of market concentration, used by Department of Justice.

Question 5

How to calculate HHI…

Answer 5

square the market share of each firm and then sum the result.

Question 6

HHI<1000

Answer 6

unconcentrated

Question 7

1000

Answer 7

moderately concentrated

Question 8

HHI>1800

Answer 8

concentrated

Question 9

Transactions increasing HHI by more than 100 do what?

Answer 9

raise antitrust concerns

Question 10

Game theory

Answer 10

study of how people and firms behave in strategic situations

Question 11

Collusion

Answer 11

an agreement among firms in a market about quantities to produce or prices to charge

Question 12

Cartel

Answer 12

group of firms acting in unison

Question 13

Nash equillibrium

Answer 13

situation in which economic participants interacting with one another each chose their best strategy given the strategies that all others have chosen.

Question 14

Number of firms in market increase…

Answer 14

price effect becomes smaller

• oligopoly looks more like competitive market
• P approaches MC
• market quantity approaches the socially efficient quantity

Question 15

Dominant strategy

Answer 15

strategy that is best for a player in a game regardless of strategies chosen by other players

Question 16

Prisoners’ dilemma

Answer 16

a “game” between 2 captured criminals that illustrates why cooperation is difficult even when it is mutually beneficial

Question 17

What happens when oligopolies form a cartel in hopes of reaching monopoly outcome?

Answer 17

Prisioners delima

Question 18

Non-cooperative oligopoly equillbrium

Answer 18

BAD for oligopoly firms: prevents them from achieving monopoly profits
-good for society

Question 19

Sherman antitrust act (1890)

Answer 19

forbids collusion between competitors

Question 20

Clayton Antitrust act (1914)

Answer 20

strengthened rights of individuals damaged by anticompetitive arrangements between firms

Question 21

resale Price Maintenance

Answer 21

occurs when manufacturer imposes lower limit on price retailers can charge
-done to reduce competition

Question 22

Predatory Pricing

Answer 22

occurs when firm cuts prices to prevent enter or drive a competitor out of the market, so it can charge monopoly

Question 23

Tying

Answer 23

occurs when manufacturer bundles 2 products together to sell for 1 price

Question 24

Externality

Answer 24

uncompensated impact of one persons actions on the well being of a bystander
-can be negative or positive

Question 25

Social Cost

Answer 25

private + external cost

Question 26

external cost

Answer 26

value of negative impact on bystanders

Question 27

In the presence of a positive externality the sisal value includes...

Answer 27

private value & external benefit

Question 28

private value

Answer 28

direct value to buyers

Question 29

external benefit

Answer 29

value of the positive impact on bystanders

Question 30

At lower Q...

Answer 30

the social value of additional units exceeds their costs.

Question 31

At higher Q...

Answer 31

the cost of the last unit exceeds its social value

Question 32

If negative externality

Answer 32

market quantity larger than socially desirable

Question 33

If positive externality

Answer 33

market quantity smaller than socially desirable

Question 34

market based

Answer 34

policies provide incentives so private decision makers make the right decisions on own

Question 35

Regulation policiesq

Answer 35

affect behavior directly

Question 36

Corrective tax

Answer 36

tax designed to induce private decision makers to take account of the social costs that arise from negative externality

Question 37

Ideal corrective tax+

Answer 37

negative externality

Question 38

Coase theorem

Answer 38

if private parties can costlessly bargain over the allocation of resources, they can solve the externalities problem on their own.

Question 39

excludable good

Answer 39

person can be prevented from using it

Question 40

rival good

Answer 40

one persons use diminishes someone elses

Question 41

free rider

Answer 41

person who receives benefit of good but avoids paying for it