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51 Cards in this Set
- Front
- Back
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why don't sellers agree not to compete?
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-high transaction cost
-collusion is illegal -difficult to devise agreement -collusion my attract other firms |
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for a cartel to be successful they must
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-prevent competition among members
-stop new competition from entering |
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which groups are seeking to limit entry from rivals?
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-entrepreneurs
-established firms -professions and trades(doctors, plumbers, etc) |
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GOVERNMENT CONCERN FOR COMPETITION IS NOT THE SAME AS
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CONCERN FOR COMPETITORS
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selling below cost
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-illegal in some cases
-wht should a firm do if they cannot sell their product before it spoils? |
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predatory pricing
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- the act of reducing prices below cost in order to drive out rivals
-intend to raise prices after to recoup losses |
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how should prices be regulated?
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-prices should be set to enable firms to earn a reasonable profit
-(who will regulate the regulators?) |
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capture theory
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regulators tend to acquire an interest in the well being of the industry they regulate(banks, phones, etc)
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sherman antitrust act
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-forbids all contracts in restraint of interstate trade and all attempts to monopolize any part of interstate trade
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clayton act
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-mergers that substantially lessen competition were made illegal
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federal trade commission act
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-created federal trade commission
-prohibited 'unfair' practices |
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Vertical restraints
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regulations on price-fixing agreements between manufacturers and retailers
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in industrial societies
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-negative externalities multiply
-civil workers ignore minor externalities and cultivate civic virtues(empathy, courtesy, tolerance) |
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compensation for negative externalities
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-virtually impossible to do
-precedents must be made and stuck with |
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why do negative externalities multiply?
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-technology
-rising incomes change peoples' view on property rights -attitudes toward the environment |
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Internalizing traffic externalities
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-congestion pricing
-tolls, gas, road construction ^good parallel to cap and trade |
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If ologopolists do not work together
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-do not end up maximizing their monopoly outcome/joint profit
-each is tempted to raise production to get the largest share of the market -production increases -price falls |
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OPEC
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-cartel
-agreed on a set production level -some countries increased the production levels to gain a greater share -price fell |
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Policy towards oligopolies
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compete rather than cooperate
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political economy
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-appropriating what should be legislated and what should be left to the market
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competition in the public sector
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-elections
-rivalry b/w diff gov't agencies -passing legislation |
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economic theory
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-all participants are concerned with personal well being and behave rationally
-if there is profit in something, it should be expanded |
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free-riders
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people who benefit from gov't but do not contribute
-nations all agree on non-violence but one does not comply -everyone SHOULD study the issues and vote accordingly but some vote off-handily |
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possible externalities of free riders
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-spillover benefits reduce the incentive to produce certain goods
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why does the gov't have so many policies regarding volunteering?
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1.protect the weak
2. standards, certification, licensing --> lowering transaction costs |
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sources of market failure the gov't tries to correct
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-free riders
-transaction costs -positive externalities |
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coercion depends on
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voluntary cooperation
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gross domestic product
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-best overall indicator of economy
-does not include expenditures |
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Gross National Product
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-amount that the citizens are making
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GDP can be interpreted 3 ways
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-expenditures of total goods and services
-total income generated by the economy - total value added to the economy |
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unsold inventories
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-gross business inventory investment
-estimate market value of unsold goods -revise GDP with actual market value |
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unemployment rate=
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unemployed/labor force
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unemployment rate is dependent on trends
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-the decision to look for work
-the kind of jobs a person would accept -U rate does not mean the same thing it did 30 years ago |
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natural rate of unemployment
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4-5%
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nominal rate of GDP=
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prices x quantities
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real GDP
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value of all goods and services produced in a year
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deflator
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most comprehensive measure of prices over time
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consumer price index
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measures inflation using using prices of goods and services bought by typical urban consumers
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macroeconomic cycles
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can be driven by a single private sector that multiplies throughout the economy
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GDP ignores
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-all non-market forms of production
-illegal production -economic profits and losses |
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seignorage
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tax added to total price of coin
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fiat money
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-let it be
-people must accept paper bills as having value |
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volume of $$
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-M1 + M2 + M3
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relationship b/w M1 M2 M3
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M1 is the most liquid. M3 is the least liquid
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required reserve ratio
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banks must have a certain ratio of deposits to loans(around 10%)
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relationship between reserve ratio and amount of $ in economy
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indirect
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increasing the required reserve ratio will
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-lower excess reserves
-reduction in ability to make loans -higher cost -reduction in potential profit |
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federal reserve
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-aka central banks
-restrains lending activities of commercial bnaks -controls money creation |
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Federal Deposit insurance corporation(FDIC)
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-bank deposits insured by US gov't
-less bank failures |
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discount rate
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-interest rate the feds charge banks for short term loans
-increase in discount rate=increase in nation's money supply |
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open market operations
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buying and selling of bonds
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