Econ 2Nd Test-Breeden

Front 1

Perfectly Competitive

Back 1

straight demand curve for the firm, dictated by where supply and demand for market cross
-firm can raise profits by increasing production

Front 2

firm with U-shaped MC curve

Back 2

Straight MR or demand line crosses u shape twice, so a firm produces where it is upward sloping

Front 3

MC crosses AVC and AC

Back 3

In short term, there is no entry or exit...so, a firm whose MC crosses the AVC makes negative profits, but continues to produce. MC = AVC is the shutdown point. When MC crosses the AC, positive profits are gained. SO....MC=AC is the break even point

Front 4

Long Term Break even (competitive firm)

Back 4

MC = AC

Front 5

Elasticity

Back 5

% change in Quantity/% Change in Price

Front 6

Competitive industry

Back 6

All firms are competive and any firm can enter and exit.

Front 7

Competitive Supply Curve (industry)

Back 7

equal to sum of all firms supply curve
Why? Because of entry. More firms enter as industry selling price becomes higher

Front 8

Factor-Price Effect

Back 8

As more and more firms enter a market, the price of a primary input will also rise if that imput is primarily consumed by the industry in question. This causes the actual industry's supply curve to be more elastic then the simple sum of the firm's curves

Front 9

Accounting Profit vs. Economic Profit

Back 9

Accounting profit is revenue minus cost, however economic profit also subtracts opportunity costs.

Front 10

constant cost industry

Back 10

1. Each firm has the same cost curve
2. That cost curve is unaffected by expansion or contraction
---Flower seller example....little skill, and the addition of more will hardly cause total land available to increase in cost.
---Long run supply is flat

Front 11

increasing-cost industry

Back 11

an industry whose break even price increases with additional entrants. -Could happen because of factor-price effect or because the new firms are inefficient

Front 12

decreasing cost industry

Back 12

a firm whose break even decreases with new entrants.
- printer and ink maker example.

Front 13

Tipping the bus boy

Back 13

Good in long run for tipper, because the average cost of the meal goes down either the entire cost of the tip in a constant cost industry, or a portion of the tip in an increasing cost industry.

Front 14

Value

Back 14

The maximum amount a consumer is willing to pay for an item

Front 15

Consumer Surplus

Back 15

The area under the demand or Marginal value curve and above the price.

Front 16

Producers surplus

Back 16

The producer's gain from trade, the ammount by which his revenue exceeds his production costs.

Front 17

Efficiency Critereon

Back 17

a normative critereon according to which your votes are weighted according to your willingness to pay for your prefered outcome.

Front 18

Why sales tax is bad

Back 18

A sales tax is bad because it creates a dead weight loss to society. The Robin Hood example is unanimously prefered over the sales tax, because it creates no dead weight loss.

Front 19

Pareto Critereon

Back 19

A normative critereon in which one outcome is chosen over another when it is unanimously prefered.

Front 20

Robbery

Back 20

Robbery is socially inefficient, because the time the robber spends getting the loot could be spent building something new. Theoretically, the robber's surplus is the top part, the social loss is the bottom, and the loss to the individual is both. The individual will also theoretically spend up to both to protect his stuff.

Front 21

Is price based on Total or Marginal Value

Back 21

MARGINAL!!!!!! Diamond/Water Paradox. Diamonds are much more expensive then water, because the additional cost of a cup of water is so small and the additional cost of a diamond is so large. Despite this, the total value of all the water is much larger, and the demand for it is much more inelastic.

Front 22

Monopoly

Back 22

Produces at a quantity where Marginal Cost meets Marginal demand, but at a price where that quantity meets the demand curve. This is socially inefficient, because it could still produce more units at a higher price than they would cost. However, the monopolist would then have to lower the prices of its other goods.

Front 23

Subsidized monopoly

Back 23

Lower Marginal Cost through taxpayer expense so that it produces where a competitive firm would produce. This is the best answer socially, but is hard to calculate. Most instead are regulated to a normal rate of return. This is also inefficient though, because it is the efficiency, and not the profits that is the problem to society.

Front 24

Price Discrimination

Back 24

CHarging different prices for identical items

Front 25

1st degree discrimination

Back 25

Charging each person the most that they would pay for an item
--this and perfect competition are socially efficient
-Steel Seller example

Front 26

2nd Degree Discrimination

Back 26

Charging the same individual different prices for the same item
-Buy two, get one half off

Front 27

2nd Degree Discrimination

Back 27

Charging the same individual different prices for the same item
-Buy two, get one half off

Front 28

3rd degree price discrimination

Back 28

Charging different prices to different markets.
-The market with the greatest elasticity will get the lowest price.
-When this is done, it is done so that the MR from each of the markets is equal. If it wasn't, greater profits could be given by producing for one market and not the other.

Front 29

Horizontal Integration

Back 29

a merger among sellers in the same market
-Can be benificial if the merger decreases the cost so much that the price is lowered, however harmful if it doesn't.
-Creates Monopolistic Power for newly merged firm

Front 30

Vertical Integration

Back 30

When a firm and a firm with which it supplies imputs merge
-If both were monopolies before, this is socially beneficial because the new firm is no longer forced to pay the monopolistic price for its imputs.

Front 31

Predatory Pricing

Back 31

When a firm prices below marginal cost in an attempt to drive its competitors out of business.
-Inefficient, because the other firms can simply start up again when it raises prices. These firms can also get help from outside sources if they are socially viable, and also can choose to produce few products so that it harms the actual company doing it more then them .

Front 32

COllusion

Back 32

An agreement regarding price and output among sellers. A cartel is the group of individuals involved in the collusion

Front 33

Prisoner's Dillema

Back 33

A collusion requires cooperation for it to be successful, however there is most often cheating which lowers the benefit to the cartel. To truly be succesful, a collusion requires regulation.

Front 34

Oligopoly

Back 34

An industry in which the individual firms can affect market conditions

Front 35

COntestable Market

Back 35

A market in which firms can enter and leave costlessly.

Front 36

Production point for a firm in a contestable market?

Back 36

Where MC meets AC...or, at zero profit. Why? Because if they produced at a higher price, firms could easily enter and drive the price down.

Front 37

Cournot Model

Back 37

A model in which the output of a competitor is assumed, and in which the firm then assumes a monopoly on the other demanders. Thus, the production is actually less than it would be in a competitive market.

Front 38

Bertrand Model

Back 38

A model in which the price at which a competitor produces is assumed. This is inefficient, however, because when the producer then sets its prices a tiny bit lower and collects the profits, the competitor responds similarily. Eventually, the price is driven down to the Marginal Cost.

Front 39

Product Differentiation

Back 39

The production of a product that is unique, but has many close substitutes .

Front 40

Monopolistic COmpetition

Back 40

Two Characteristics:
1. Promotion (to emphasize differentiation)
2. Entry

Front 41

Marginal Revenue Product

Back 41

The additional revenue gained by the production of one more unit.
--Equal to Marginal Product times price
---Employ Labor up to the point where Marginal Revenue Product crosses Marginal Cost (Wage rate)

Front 42

Why has wage rate increased, but working week decreased from 1890 to 1990?

Back 42

Because non-labor income (401K, investment, etc...) has increased at an incredible ammount.

Front 43

Agricultures Supply curve

Back 43

Inelastic...because there is a constant ammount of vegetables/fruits/grains being produced. Thus, when that ammount is decreased by a blight...the revenue of farmers is actually increased due to the elasticity.