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15 Cards in this Set
- Front
- Back
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The four types of market structure |
Perfectly competitive; monopoly; oligopoly; monopolistic competition |
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Name the two dimensions that define a market model: |
Number of producers and whether the products in question are similar or differentiated |
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What is monopolistic competition? |
Many producers selling a differentiated product. Like a psych textbook, generally the same good but different authors with different approaches |
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Technical definition of a monopolist |
A firm that is the sole producer of a good without any close substitutes |
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What is the purpose of an anti trust law? |
To prevent monopolies from emerging |
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What is market power? |
The ability of a firm to raise prices, typically by controlling supply. This is what monopoly is all about, baby! |
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List the five principal types of barriers to entry |
Control of a scarce resource or input; increasing returns to scale; technological superiority; a network externality; government created barrier to entry |
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What is control of a scarce resource? |
A monopolist can control the flow of necessary inputs, preventing competitors from entering the market |
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Define increasing returns to scale |
When costs fall as output increases--like laying gas lines to be a new gas supplier. The explicit cost is enormous, but the profits won't be enough until you have the customers |
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How is a "natural" monopoly created? |
Through the influence of increasing returns to scale, as larger companies in certain markets will have a cost advantage over newer, smaller firms |
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What is network externality? |
The value of a good to one individual is dependent on the amount of other consumers using it: online games |
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How does a copyright differ from a patent? |
Patents grant ownership of an invention or physical product to the creator, whereas copyrights guarantee profits from someone's intellectual / artistic works goes to them |
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List and define the two effects on revenue when a monopolist increases production. |
Quantity effect: one more unit is did, increasing total revenue by the price that good was sold for. Price effect: to sell the last unit, the monopolist has to reduce pricing on all units, which in turn reduces total revenue |
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Define monopsony |
When there's only one buyer of a good, more rate than a monopoly |
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Two methods a government could use to prevent a natural monopoly? |
Public ownership; price regulation |
