Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
30 Cards in this Set
- Front
- Back
Reasons for Monopolies- Barriers to entry
|
1. Ownership of resources without close substutes
2.Economies of cale and very high start up costs 3. Legal restrictions (franchises, patents, copyrights) |
|
Natural monopolies
|
occur when one firm can produce at a lower per-unit cost than two or more firms
|
|
Profit maximizing quantity is when
|
MR=MC
|
|
Profit Maximization for a monomplist results in inefficient production from society's perspective because
|
P>MC
Monopoly does not produce at minimum LRAC in LR eqm |
|
Features of Monopolistic Competition
|
Large number of firms but fewer than perfect competition implying:
a. each firm has a a small market share b. price rigging is extremely difficult c. firms in industry tend to act independently 2. Product differentiation 3. Ease of entry and exit 4. Advertising may increase profits |
|
In short run equilibria
|
economic profits can be greater than zero as in Figure A (implying above average accounting profits) Less than zero ( implying below average accounting profits) or equal to zero ( implying normal or average accounting profits)
|
|
Long run equilibrium
|
Economic profits equal zero implying an average or a normal accounting profit.
|
|
Inefficient from a societal perspective because
|
Price> marginal cost
firms do not produce at minimum average cost in LR |
|
Features of a oligopoly
|
1. Few firms in the market
2. Strategic dependence(have to think about what competitors are doing) 3. Barriers to entry are likely a. economies of scale due to high-start up sosts b. legal barriers 4.collusion (price rigging is possible 5. Economic profits may exist in the long-run due to barriers 6. Probably inefficient b/c price is likely> MC 7. Price to consumers charged by oligopolists may be lower than would be charged by many smaller firms-same with monopoly |
|
Market Failure occurrs...
|
When an inefficient amount of resources are used to make a good or service
|
|
Market failure arises...
|
In a pure market system when externalities exist
|
|
Externality
|
occurs when production or consumption of a good or service affects one or more parties who are neither the producer nor the consumer
|
|
Negative externality or spillover cost
|
when producing or consuming something imposes a cost on a third party
ex. pollution, smoking |
|
Positive exrernality or Spillover benefit
|
occurs when producing or consuming something gives benefits to a thiurd party
1. Vaccines, education |
|
Government correcttions to move away from Equilibrium Private and towards equilibrium society
|
Taxes, Regulations, polution permits
|
|
Government corrections to move away from Ep and toward Es
|
Public provisions, subsidies, Regulation
|
|
A plot of the combinations of good where a consumer achieves the same level of utility is called an
|
Indifference curve
|
|
a plot of an indifference curve is called an
|
indifference map
|
|
A plot of the numbers above showing combinations that cost the same amount where a consumer exhausts his or her income is called a
|
budget constraint
|
|
maximum utility given the budget constraint occurs where
|
the indifference curve is tangent to the budget constraint
|
|
Full employment GDP
|
when unemployment is limited to frictional and structural unemployment
|
|
Recessionary Gap
|
actual GDP < Full employment GDP, usually has a large amount of cyclical
|
|
Inflationary Gap
|
actual GDP > Full employment GDP concern for inflation
|
|
What are the four central arguments of Keynes General Theory of Employment, INterest and Money?
|
1. Business cycles are not necessarily self correcting, 2) full employment GDP depends Critically on Aggragate demand and investment is a key component of AD, AD= C+ I + G+ (X-IM) 3) Sometimes I may not be sufficient to soak up all household savings ( see circular flow diagram) this can create unemployment (AGDP < PGDP) 4) To restore the economy to full employment when recession occurs the government should exercise fiscal policy. When there is a recession government can increase government spending and/or decrease taxes which with increase consumption.
|
|
a
|
b
|
|
c
|
d
|
|
e
|
f
|
|
g
|
h
|
|
i
|
j
|
|
k
|
l
|