Part 3 (ch 8-10)

Question 1

Price setter

Answer 1

that is a firm with at least some latitude to set its own price, for example a copyright holder. For example when a card game can’t be redistributed because it’s copyrighted and such no competitors are likely to arise.

Question 2

A pure Monopoly

Answer 2

they’re only supplier of a unique product with no close substitutes.
It’s the complete opposite of a perfectly competitive market on a scale of imperfect competiton.

Question 3

A monopolistic competition

Answer 3

it’s an industry structure in which a large number of rival firms sell products that are close, but not quite perfect, substitutes.

Question 4

Oligopoly

Answer 4

an industry structure in which are small number of large firms produce products that are either close or perfect substitutes.

Question 5

These sensual characteristics that differentiates imperfectly competitive firms from perfectly competitive firms is the same - …

Answer 5

namely, that whereas the perfectly competitive firm faces a perfectly elastic demand curve for its product, the imperfectly competitive firm faces a downward-sloping demand curve.

Question 6

Market power

Answer 6

affirms ability to raise the price of a good without losing all its sales.

Question 7

five factors often confer market power

Answer 7

exclusive control over inputs, patents and copyrights, government license or franchises, economies of scale, and network economies.

Question 8

Economics of scale

Answer 8

if you double the output the per unit price will decrease. A monopoly that results from economies of scales it’s called a natural monopoly.

Question 9

Marginal revenue

Answer 9

the change in affirms total revenue that results from one unit change in output.

For both the perfectly competitive firm and the monopolist the marginal benefit is called the firms marginal revenue.

Question 10

Price discrimination

Answer 10

the practice of charging different prices for essential the same good or service. Price discrimination affects the monopolists profit maximizing level of output.

Question 11

Hurdle method of price discrimination

Answer 11

Creating hurdels eg. cupons, to determin how much each are willing to pay and who are willing to pay at a higher price.

Question 12

Dominant strategy

Answer 12

one that yields a higher payoff and no matter what the other players in the game chooses.

Question 13

Dominated strategy

Answer 13

any other strategy available to a player who has a dominant strategy.

Question 14

Nash equilibrium

Answer 14

any combination of strategy choices in which each player’s choice is his or her best choice given the other players choices.

Question 15

The prisoners dilemma

Answer 15

a game in which each player has a dominant strategy, and when each plays it, the resulting payoffs are smaller than if each had played a dominated strategy.

Question 16

Tit-for-tat

Answer 16

a strategy for the repeated prisoners dilemma in which players cooperate on the first move and then mimic their partners last move on each successive move.

Question 17

Thinking system 1 and 2 is respektive

Answer 17

System 1: Fast automatic thinking. Based on
stereotypes, previous experiences, etc.

• System 2: A slowly more calculating thinking.
  Calculative, conscious and logical.

Question 18

Repeatedly consistent evidence:

Answer 18

• Bounded rationality (rules of thumb)
• Bounded willpower
• Bounded self-interest

Question 19

Bounded rationality (limited cognitive abilities

Answer 19

Availability heuristic, Representativeness heuristic, Anchoring effects, Framing effects, Regression to the mean, Loss aversion & Habitual behaviors

Question 20

What dose these entail?
Availability heuristic, Representativeness heuristic, Anchoring effects, Framing effects, Regression to the mean, Loss aversion & Habitual behaviors

Answer 20

Availability heuristic: Judgment is influenced by what first comes to mind.

Representativeness heuristic: Judgement on probabilities are often assessed using similarities.

Anchoring effects: tendency to stick to the first piece of information we get

Framing effects: many decisions are determined by the way information is presented.

Regression to the mean: the phenomenon that unusual events are likely to be followed by more nearly normal events.

Loss aversion: individuals are more likely to act to avoid loss than to pursue gain (endowment effect, status quo bias).

Habitual behaviors: many choices are not true decisions but automatic responses (i.e., default option).

Question 21

Bounded willpower (short-sighted)

Answer 21

Discounting
* Neoclassical economics assume people discount the future at a constant fraction (exponential discounting)

• In reality people tend to discount the long-term future heavier (less impact) than they discount the short-term future (hyperbolic discounting)

Question 22

Bounded self-interest

Answer 22

People often sacrifice themselves in order to help others: Fairness concerns & Altruism

Question 23

judgmental and decision heuristics

Answer 23

rules are thumb that reduce computation costs

Question 24

Collective action problem

Answer 24

Situation in which all individuals would be better off
cooperating but fail to do so