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ECON 102 BIG QUESTIANO BANK OF KNOWLEDGE > WEEK 7-12 > Flashcards

WEEK 7-12 Flashcards

1
Q

There are many what in perfect competition

A

Many buyers
Many sellers

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2
Q

In perfect competition outputs from sellers are

A

Homogeneous

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3
Q

In perfect competition buyers know what

A

All the info from all the sellers

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4
Q

Are there barriers to entry in perfect competition

A

No

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5
Q

How are the products in imperfect competition

A

Different to other competitors

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6
Q

Many firms are what in imperfect competition

A

Price setters

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7
Q

Can firms raise prices in imperfect competition

A

Yes

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8
Q

In perfect competition demand is

A

Perfectly elastic

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9
Q

In imperfect competition demand is

A

Downwards sloping

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10
Q

What are the 3 types of imperfect competition

A

Pure monopoly
Oligopoly
Monopolistic competition

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11
Q

Monopoly characteristics

A

many buyers
1 seller
No close substitutes
Buyers informed of competing suppliers
Barriers to entry

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12
Q

What are the 3 revenues

A

Average revenue - AR
Total revenue - TR
marginal revenue - MR

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13
Q

How to get TR from AR

A

Times AR by Q

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14
Q

How to get MR from TR

A

Differentiate TR

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15
Q

What are the 3 costs

A

Total cost - TC
Average Cost - AC
Marginal cost - MC

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16
Q

How to find AC from TC

A

Divide TC by Q`

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17
Q

How to find MC from TC

A

Differentiate TC

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18
Q

When is profit maximized

A

When TR>TC and vertical distance between TR and TC is greatest

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19
Q

In math’s questions MR = what

A

MR = MC

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20
Q

Why are monopolies inefficient in terms of price

A

Prices are higher since sole firm

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21
Q

Why are monopolies inefficient in terms of quantity

A

The quantity will go down so less goods and services

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22
Q

Why are monopolies inefficient in terms of surplus

A

The customer surplus is smaller so customers pay more and receive less value

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23
Q

3 conditions for price discrimination

A

Price setter
Can identify customers
Customer’s can’t resell

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24
Q

Example of a 2nd degree price discrimination

A

Promotion codes

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25
Q

Example of a 3rd degree price discrimination

A

Older people take buses instead of walking whereas younger people walk

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26
Q

In perfect competition do price setters care about competitors prices

A

No

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27
Q

Is there competitors in a monopoly

A

No

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28
Q

Whats game theory used to do

A

Distinguish rational and intelligent decision makers

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29
Q

What are the 2 main types of games

A

Simultaneously played
Sequential played

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30
Q

Features of a simultaneously played game

A

Moves chosen simultaneously
Player doesn’t know the others actions

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31
Q

Features of a sequentially played game

A

Moves made one after another
Players know what the previous move was

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32
Q

The 3 elements of a sequential ame

A

Players
strategies
Play offs / utilities

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33
Q

How to solve a game

A

Stable outcome
Reached by rational thinking

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34
Q

Why is it best to have a stable outcome

A

Players don’t change their mind

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35
Q

Whats the best way to solve a game

A

Finding the Nash equilibrium

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36
Q

What is iterated dominance

A

Means illogical actions can be deleted

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37
Q

How to solve a game with one Nash Equil

A

Choose the Equil

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38
Q

How to solve a game with more than one Nash Equil

A

Choose any of them

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39
Q

How to solve a game with no equilibrium

A

No logical way to choose, turns into a probability distributions

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40
Q

What are the 2 types of repeated games

A

Finitely repeated games
Infinitely repeated games

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41
Q

How many strategies do infinitely repeated games have

A

2

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42
Q

What are the 2 strategies for infinity games called

A

Grim trigger

Tit for tat

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43
Q

What is grim trigger

A

Will cooperate until defection then will defect for the rest of the game

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44
Q

What is tit for tat

A

Repeating the previous action

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45
Q

People are not always what

A

self-interested

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46
Q

People can make decisions on what

A

Social preference

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47
Q

Examples of social preferences people can make decisions on

A

Inequality aversion
Kindness reciprocity
Guilt aversion

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48
Q

Are business cartels usually legal

A

No

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49
Q

Whats the biggest cartel

A

OPEC - Petroleum producers who also are policy setters

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50
Q

Tit-for-tat is weakened when what

A

more than 2 players in a game

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51
Q

Why is there instability in cartels

A

News firms can enter and cut a price below the cartel and gain all the customers, can produce more than the cartel too

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52
Q

The cournot model is when firms

A

Choose output levels

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53
Q

the bertrand model is when firms

A

Decide on price

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54
Q

How many firms can be modeled in the cournot model

A

2 or more

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55
Q

What assumptions are made in the cournot model

A

Highly sustainable products

Firms have same tech and input costs

Constant unit costs

straight demand curve

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56
Q

Whats the reaction function

A

The best response of a player

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57
Q

If firms maximize profits what the best response in the cournot model

A

The best response is the response that yeilds the highest profit

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58
Q

In the cournot model with 2 firms, if a firms output is P=AC and Profit = 0, the other firm should

A

The other firms best choice is not to produce anything

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59
Q

In the cournot model with 2 firms, if one firm chooses to produce nothing the best choice for the other firms output is

A

The monopoly output

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60
Q

The closer its output is to the monopoly output on its own axis means what

A

The higher its profits are

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61
Q

In the cournot model with 2 firms, what are the axis labeled on the reaction function

A

Firm 1 output = x
Firm 2 output = y

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62
Q

What are the 3 things in cournot equilibrium

A

Firms simultaneously decide output
Profit maximisation
No further changes

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63
Q

Under cournot equilibrium, Each firm is setting MC equal to what

A

MR

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64
Q

Under cournot equilibrium, On the reaction curve where is production happening

A

Left of the point at which AC reaches a minimum

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65
Q

Under cournot equilibrium, Industry output is below what

A

What a perfectly competitive industry would provide, but above what a monopolist would provide

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66
Q

Under cournot equilibrium, firms earn what profit

A

Super normal profit, but not as much as if they colluded in a cartel

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67
Q

What is the Bertrand competition

A

The name given to oligopolistic strategies based around price-setting

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68
Q

In the bertrand competition, firms compete on what

A

Price

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69
Q

In the bertrand competition, what is assumed

A

Others will charge the current price

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70
Q

In the bertrand competition, who can undercut

A

Any firm if the price doesn’t drop beneath the MC

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71
Q

What is the bertrand paradox

A

That when the prices are undercut they can converge to the competitive level equal to MC or be higher

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72
Q

3 Reasons the bertrand paradox wouldn’t hold in terms of constraints

A

Firms have capacity constraints, and output cannot increase sufficiently for price to be driven down so low

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73
Q

3 Reasons the bertrand paradox wouldn’t hold in terms of differentiation

A

Product differentiation means that the firms’ products are not highly substitutable

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74
Q

3 Reasons the bertrand paradox wouldn’t hold in terms of short-term

A

Firms know that the short-term gain of undercutting leads to less profit in the future

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75
Q

When does monopolistic competition arise

A

When there are many buyers and sellers, and sellers can differentiate their products

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76
Q

What slope is in monopolistic competition

A

Downwards slope

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77
Q

What are the profits like in monopolistic competition

A

Profits in short-run, but these are competed away by entry of new fimrs so that in the long run supernormal profits are 0

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78
Q

The monopolistic competition equilibrium involves

A

Lower output and a higher price than under perfect competition

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79
Q

the 2 options to model labour

A

Spend time working
Spend time leisure

80
Q

the substitution effect of a wage change on labour supply is always what

A

positive

81
Q

The income effect of a wage change on labour can be what

A

positive or negative

82
Q

Whats the equation for Marginal value product of labour

A

MVPL = marginal product of labour x output price

83
Q

What is the marginal cost of labour in perfect competition

A

Wage

84
Q

Firms will employ workers up to the point where

A

Wages = MVPL

85
Q

IN monopoly power what does MPL x MR make

A

labour demand curve

86
Q

What is left out of MVP in monopolies

A

MRP

87
Q

Why is MRP left out of MVP in monopolies

A

As a monopoly produces less output than a competitive firm - employs less workers

88
Q

In a monopsony MCL will be what sloping

A

Upwards sloping

89
Q

In monopsony power profit maximisation occurs where

A

MCL = MRP

90
Q

Wage is determined by what in monopsony

A

Average cost of labour

91
Q

When do firms gain monopsony powers

A

When workers are not constantly searching for other jobs

92
Q

What are 5 reasons there is difference in earnings

A

Human capital explanation

Trade unions

Compensating wage differentials

Discrimination by employers

Discrimination by others

93
Q

What is the human capital explanation

A

Pay is determined on their stock of “human capital”

94
Q

What is human capital

A

Certain factors of someone such as education, energy, experience

95
Q

Why does trade unions explain differences in wages

A

Group of workers bargain with employers for better wages

96
Q

Why does compensating wage differential explain differences in wage

A

Can expect jobs with worse working conditions to pay more than one with nice conditions

97
Q

Why does discrimination by employers explain differences in wage

A

An employer reflects a preference for a group of workers compared to another

98
Q

Why does discrimination by others explain differences in wage

A

Customers might want to only buy a product produced by their favored group

99
Q

What was the % of the bottom 20% of income distribution in 2008

A

3.4%

100
Q

What was the % of the highest 20% of income distribution in 2008

A

50.3%

101
Q

What is the gini coefficient

A

A measure of equality and distribution on income or wealth by percentages of households or individuals from poorest to richest

102
Q

What does the gini coefficient provide

A

A basis for comparing distributions on an onjective numerical basis

103
Q

If the income of the population was perfectly equal what would happen to the gini coefficient graph

A

45 degrees line

104
Q

What is the Lorenz curve

A

The graph of the cumulative distribution of income by % of people from poorest to richest

105
Q

What foes an indifference analysis show

A

Shows preferences for working and leisure

106
Q

Example of something that can be used as a budget constraint

A

A weekly wage

107
Q

is a budget constraint a curved or straight line

A

Striaght

108
Q

How do indifference labour demand graphs show how many hours of labour should be done

A

When the budget line and indifference curve touch

109
Q

The substitution effect shifts left or right on the labour demand graph

A

Right

110
Q

What are the X and Y axis on labour graphs

A

X = Leisure
Y = Income

111
Q

At high wages what can happen

A

the income effect dominates the substitution effect

112
Q

What does the income effect dominating the substitution effect mean

A

leads to a backward bending supply of labour

113
Q

What graph shape can high wages lead to

A

A reverse c

114
Q

What does overtime introduce in labour demand graphs

A

A kink (An extra downwards line that will hit a higher indifference curve as more income)

115
Q

Will a monopoly hire more or less workers

A

Less as less output

116
Q

What can a minimum wage generate

A

An excess supply of labour - unemployment

117
Q

What can a minimum wage do under a monopsony

A

Raise employment

118
Q

When a minimum wage is imposed the MCL becomes what

A

the minimum wage

119
Q

uncertainty doesn’t equal what

A

Risk

120
Q

What does uncertainty refer to

A

Situations where the probability is unknown

121
Q

Risk activities have what characteristics

A

Likely outcome
Degree of variation

122
Q

If EV = 0

A

Going to make on average 0

123
Q

If EV>1

A

Going to make profit

124
Q

IF EV<1

A

Going to lose money

125
Q

If 50% = 100 and 50% = -100 whats its EV

A

0.5 x100 + 0.5 x -100 = 0

126
Q

how to work out EV with a price to play the game

A

EV - cost

127
Q

When is the lottery unfair

A

When EV is above or below 0

128
Q

What are the risk profiles for people

A

Risk-averse
Risk-neutral
Risk-loving

129
Q

The 2 types of info a decision maker wants

A

Hidden characteristics
hidden actions

130
Q

what are hidden characteristics and an example

A

Things one side of the transaction knows about itself

Selling a laptop you know is broken

131
Q

What are hidden actions and an example

A

Actions taken by one side that the other can’t observe

People recklessly driving after getting insurance

132
Q

what can asymmetric info do in regards to price discrimination

A

It can go against the 3 conditions - EG it hidden info means firms don’t know peoples willingness so can’t know their demand for a product

133
Q

Can firms in perfect competition price discriminate

A

Yes

134
Q

Why can firms in perfect competition charge different amounts

A

As they know the willingness of people to pay

135
Q

how can firms in imperfect competition find ways to find hidden characteristics

A

Can charge different amounts - Airports charge more for a flight with no restrictions vs one with restrictions

136
Q

Examples of firms finding hidden characteristics

A

Auctions always find the highest marginal prices

137
Q

Under symmetric info how do wages work

A

better workers better paid

138
Q

What happens with wages for high ability workers under asymmetric info

A

Try to reveal themselves as better so they are paid better

139
Q

Example of high ability people trying to reveal themselve

A

after uni everybody has a degree but some have a first class degree versus a second

140
Q

What is adverse selection

A

When the uninformed side of a deal gets the wrong people trading with them

141
Q

What does the markets for lemons model say

A

Asymmetrical info tends to reduce the average quality of goods sold

People with worse stuff are more likely to sell

142
Q

If good cars are worth 10k and are 90% of the market and bad cars are worth 6k and are 105 of the market what should your reservation price be

A

0.9 x 10000 + 0.1 x 6000 = 9600

143
Q

What is a moral hazard

A

people take fewer precautions as they know they will be bailed out

144
Q

Example of a moral hazard

A

If a bank is to big to fail they will take bigger risks as they know they will be bailed out

145
Q

Why is a total damage graph downwards sloping

A

More care is being put into it

146
Q

Whats the X and Y axis of an expected total damage graph

A

X = units of care
Y = Units of all other goods

147
Q

In fire prevention graphs what does marginal benefit mean

A

Reduction in expected damages

148
Q

Why is the Marginal benefit line downwards sloping

A

As more care is taken, the last increment of care has less of an effect on the risk of fire than the earlier units of care

149
Q

How to find the height of the marginal benefits line

A

-1 x the gradient of the TD curve

150
Q

With insurance the equalibirum on a marginal benefit line shifts how

A

Shifts left

151
Q

More or less units of care with insurance

A

less

152
Q

Whats a co-insurance

A

Insurance where the policy holder picks up some of the bill

153
Q

Example of a co -insurance

A

If some thing is £1,000 they might make you pay 20% of it

154
Q

Where is the equilibrium with a co-insurance

A

In between no insurance and insurance

155
Q

Whats a way of an insurance holder bearing some risk

A

An excess or premium on a policy

156
Q

Whats the opportunity costs

A

the cost is the value of the next best option

157
Q

What would be the X and Y axis on a PPC graph

A

The 2 products being created

158
Q

What are the 4 points on a PPC graph

A

Inefficient point
Attainable point
Efficient point
unattainable point

159
Q

Whats an inefficient point

A

Any combination of goods where resources enable an increase in the production of one good without a reduction in production of the other

160
Q

What’s an attainable point

A

Any point on the line

161
Q

Whats an efficient point

A

Any combination that doesn’t allow an increase in the production of one good without a reduction in the other

162
Q

Whats an unattainable point

A

A combination of goods that cannot be made

163
Q

Whats a comparative advantage

A

If one person has an advantage in a task or thier opportunity cost of performing a task is lower than the other person’s opportunity cost

164
Q

where is an inefficient point on a PPC

A

Left of the line

165
Q

Where is an unattainable point on a PPC graph

A

Right of the line

166
Q

How do you write the tables out for advantages

A

Output and units going across
names going down

167
Q

If joe makes 8 bread and 6 beer what is the opportunity cost of him producing one bread

A

6/8 or 0.75%

168
Q

Why is international trade better

A

The basis of comparative advantage improves global output

169
Q

What can be instead of units per hour in the comparative advantage tables

A

fractions of an hour - instead of 6 bread per hour it will be 1/6 of an hour per bread

170
Q

Taxes on imports are called what

A

taridds

171
Q

Tariffs lead to what

A

A welfare loss

172
Q

Do tariffs increase or decrease consumer surplus

A

Decreases

173
Q

How are tariffs shown on a graph

A

A horizontal line coming from the y axis

174
Q

Will quantity rise or fall under tariffs

A

Fall

175
Q

Under tariffs who gains and loses

A

Consumers lose
Producers gain

176
Q

How to solve comparative advantages

A

Read table
Divide left by right per person
See what ratio is higher
Then vice versa

177
Q

In a monopoly, profit is maximized when

A

MR = MC

178
Q

If AR = 12 - 8q what is the MR

A

MR = 12 - 16q

179
Q

If TC = 40 + 0.8q^2 then whats the MC

A

MC = 1.6q

180
Q

is it possible for a normal form game not to have a pure strategy nash equilibrium

A

yes

181
Q

In game theory assuming players are rational means

A

They will choose the option that gives them the most

182
Q

How to find the nash equilibrium

A

The option is when both sides get the same out, but it doesn’t deviate from their original strategy

183
Q

In the short-run what profits are in monopolistic competition

A

Supernormal

184
Q

In the long term how are the profits in monopolistic competition

A

0

185
Q

The cournot model is when firms choose output levels true or false

A

True

186
Q

The bertrand model is when firms decide on price true or false

A

True

187
Q

Are cartels always illegal

A

No

188
Q

In a perfectly competitive labour market, a workers value to the employer depends on how many units of goods she produces

A

False - depends also on price of good and wages

189
Q

MPL is the money value of additional output for employing another unit of labour - true or false

A

False - MPL is physical output, MVPL is money output

190
Q

If a firm has monopsony power in the labour market, its MCL will be horizontal - true or false

A

False - MCL will be sloping upwards

191
Q

A monopolist could face competition in the labour market - true or false

A

True

192
Q

Does a person have a comparative advantage over another if they can earn more performing a task than the other

A

No - Have a comparative advantage if their opportunity cost is lower than the others opportunity cost

193
Q

In a perfectly competitive and monopolistic industry the demand curve is downwards sloping - T or F

A

F - Both are downwards

194
Q

Perfectly competitive firms have no control over the price they charge - T or F

A

True

195
Q

for natural monopolies AC declines as the supply rises - T or F

A

True

196
Q

A single-price profit-maximising monopolist will always price above the Marginal cost of production - T or F

A

T

197
Q

If a monopolist could perfectly price discriminate:
a. The marginal revenue curve and the demand curve would coincide.
b. The marginal revenue curve and the marginal cost curve would coincide.
c. Every consumer would pay a different price.
d. Marginal revenue would become negative at some output level.
e. The resulting pattern of exchange would still be socially inefficient.

A

A

ECON 102 BIG QUESTIANO BANK OF KNOWLEDGE (9 decks)

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