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14 Cards in this Set
- Front
- Back
monopoly vs monopsony
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monopoly = single supplier of a good or service ( i.e. DTE)
monopsony = single demander for a good or service (i.e. GM circa 1980) |
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for competitive markets to achieve efficient levels of production, no single producer should be __________________________________________________________________________________________________________________________________________________.
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large enough to shift the supply curve of the industry significantly by withholding output from the market.
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Natural Monopoly
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When decreasing unit costs prevail in an industry, new firms must compete with existing firms that have the advantage of economies of scale, allowing them to produce the commodity more cheaply.
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the efficient production and distribution of commodities through market exchange are guaranteed if producers, consumers, and the commodities exchanged have certain characteristics, which include the following assumptions:
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1. All available information regarding the commodity being traded is to be shared by all participants
2. a large number of producers and consumers are to be involved in the market for a single commodity. 3. Only parties who participate in the market for some commodity are to be affected by its production and use, 4. Bargaining among participants entails no time or other resource costs. 5. Those who are not paying for a particular good can be prevented from using it, and one person's use of a good or service prevents another's use of the same commodity. |
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When the actions of one producer or consumer impose costs on others. a private producer will generate more than the efficient level
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negative externalities,
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When the actions of one producer or consumer impose benefits on others. an unregulated private market will supply too little of a good. Public goods can be regarded as an extreme type.
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positive externalities
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Externalities result in inefficiency because:
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the producers in a private market do not take account of all costs and benefits in determining output or consumption.
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Public goods have two distinctive characteristics:
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non-excludability and nonrivalry in consumption.
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non-rivalry
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that one individual's consumption in no way precludes another's consumption.
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an individual has no incentive to express his willingness to pay for a public good through a collective decision since it is possible to receive benefits of a public good paid for by others. This problem of collecting fees makes establishing an efficient production level for a public good a complicated undertaking.
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"free-rider" problem
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perfect information only requires that:
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his information be as good as that available to his competitors so that no supplier possesses an advantage
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substantial transaction costs may
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block many efficient exchanges from occurring
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2 main rationales for public provision
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non-excludibility and non-rivalry of consumption
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Public Provision
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When a governmental body intervenes and taxes households to collect sufficient funds to provide a public good.
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