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37 Cards in this Set
- Front
- Back
- 3rd side (hint)
Equilibrium Interest Rate
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Fed policy (may) shift supply curve. Individuals and companies would sell bonds in an attempt to hold more money (think - what is the government doing -)
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Aggregate Demand may shift by...
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Decrease in $ supply - because it decreases interest, therefore decreases investment, therefore decreases GDP
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VELOCITY of Money
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is equal to: price level x real output (GDP)/Money Supply
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Price Level
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Is equal to nominal GDP/ Real GDP (it is our GDP deflator)
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Monopolies and taxes
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In a PC market, does not matter who pays the tax. Consumers will pay some - BUT if market is monopolistic, producers will not pay
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Long Run - Taxes
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Oh dear
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Short Run - Taxes
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Oh dear
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Monopolies
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okay
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Price Floor
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floor
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Price Ceiling
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hmm
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Short Run - AD/SRAS
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-
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fun
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Long Run
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see slides
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help
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Aggregate Demand
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C + I + NX + G
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Same as GDP
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LRAS
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kk
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Shifts
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SRAS
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nn
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love others more - do not be unkind!
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Monopolistic Competition
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Same as Perfectly Competitive Market, but with heterogeneous goods
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Order of Prices in markets
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Perfectly Competitive --> Monopolistic Competition--> Oligopoly --> Monopoly
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Oligopoly
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Examples: Auto, Car Industries (In any particular market, only a few provide the services)
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Competition in Oligopoly
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Price War leads to lower price than Monopoly, but, still more than Perfectly competitive market.
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Collusion
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When several firms agree to jointly act (raise prices, lower output, etc.) - called a CARTEL when formally organized (ex: OPEC)
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Controlling Monopolies
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Anti-Trust Laws (Prevent mergers, collusions; REGULATE)
Public Ownership (Govt ownership--> USSR as an example of this) Expiring Patents and Copyrights |
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Monopolistic Competition (further details)
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Perfect Competition, Information, but heterogeneous goods; Moderate substitution due to brand loyalty- Consumer Preferences give companies some monopoly power (ex: General Mills Cereal, Reeses' etc.) FREE ENTRY AND EXIT in the Long Run, and in the Short Run, Barriers to entry apply
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Collusion Outcomes
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Group gets more profit, but individually they can get more profit by doing this - individual incentives still apply and thus frustrate this effort anyway
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Cartel continued
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Drug Cartel example: can coordinate choices to keep prices high; if one deviates, then the perpetrator is looked up and... gulp.Cartel = MOST EXTREME version of collusion
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Price Discrimination
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When a firm sells the same good to different customers at different prices (Requires firm to have market power, ability to distinguish between customers, ability to prevent resale, and may involve undercutting of another firm)
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Market FAILURES
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Externalities, Public Goods, Information Asymmetries, Monopolies or Market Power
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Externalities are... and have this effect...
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spillover effects to people who are not in the transaction/ side effects of one's person's choice on other people (can be positive or negative)
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Positive Externalities
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Landscaping your yard - increase the value of land; beekeeping and orchards - pollinate; success of your children.. BUT - no compensation for what you produce - compensation is a broad thing
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Negative Externalities
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Pollution, Annoying Behavior etc.
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Marginal Private Cost
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like supply curve; it is the Marginal cost to the actor making the choice
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Marginal External Cost
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Marginal Cost imposed on others
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Marginal Social Cost
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MPC + MEC = MSC ( adding up the costs for whole society)
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Marginal Private Benefit
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(MPB) - Benefit to the actor ( an individual demand curve)
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Marginal External Benefit
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Benefits that spill over to others
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Marginal Social Benefit
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(MSB) = MPB + MEB
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Free Markets and Externalities results in ...
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not enough Positive Externalities, too many negative ones
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Ways to solve the problem of externalities
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Command and Control - Government Forces the right choice
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