Part 3 (ch 8-10) Flashcards
Price setter
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.
A pure Monopoly
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.
A monopolistic competition
it’s an industry structure in which a large number of rival firms sell products that are close, but not quite perfect, substitutes.
Oligopoly
an industry structure in which are small number of large firms produce products that are either close or perfect substitutes.
These sensual characteristics that differentiates imperfectly competitive firms from perfectly competitive firms is the same - …
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.
Market power
affirms ability to raise the price of a good without losing all its sales.
five factors often confer market power
exclusive control over inputs, patents and copyrights, government license or franchises, economies of scale, and network economies.
Economics of scale
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.
Marginal revenue
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.
Price discrimination
the practice of charging different prices for essential the same good or service. Price discrimination affects the monopolists profit maximizing level of output.
Hurdle method of price discrimination
Creating hurdels eg. cupons, to determin how much each are willing to pay and who are willing to pay at a higher price.
Dominant strategy
one that yields a higher payoff and no matter what the other players in the game chooses.
Dominated strategy
any other strategy available to a player who has a dominant strategy.
Nash equilibrium
any combination of strategy choices in which each player’s choice is his or her best choice given the other players choices.
The prisoners dilemma
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.
Tit-for-tat
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.
Thinking system 1 and 2 is respektive
System 1: Fast automatic thinking. Based on
stereotypes, previous experiences, etc.
- System 2: A slowly more calculating thinking.
Calculative, conscious and logical.
Repeatedly consistent evidence:
- Bounded rationality (rules of thumb)
- Bounded willpower
- Bounded self-interest
Bounded rationality (limited cognitive abilities
Availability heuristic, Representativeness heuristic, Anchoring effects, Framing effects, Regression to the mean, Loss aversion & Habitual behaviors
What dose these entail?
Availability heuristic, Representativeness heuristic, Anchoring effects, Framing effects, Regression to the mean, Loss aversion & Habitual behaviors
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).
Bounded willpower (short-sighted)
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)
Bounded self-interest
People often sacrifice themselves in order to help others: Fairness concerns & Altruism
judgmental and decision heuristics
rules are thumb that reduce computation costs
Collective action problem
Situation in which all individuals would be better off
cooperating but fail to do so
