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75 Cards in this Set
- Front
- Back
The only seller of a good with no close subsitutes?
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Monopoly firm
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The market inwhich a monopoly firm operates
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monopoly market
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3 barriers of entry in a monopoly firm? ELN
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Economies of Scale, Legal Barriers, and Network Externalities
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This happens when one firm can operate at a lower cost than all other firms
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Economy of scale
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arises when one firm
can produce for the entire market at lower cost per unit |
Natural Monopoly
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temporary grant of monopoly
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patents
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grant of exclusive rights to sell a literary, musical, or artistic work
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copyrights
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The added benefits for all users of a good or service that arise because other people are using it too
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Network externalities
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Is it better to join a large network or a small network of externalities?
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Large
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2 Economic constraints in a monopoly? describe them
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cost- input prices and technology, Market demand- The highest price it can charge
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In a monopoly the price sets the _____ and the output sets the ________
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Output and Price
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Two trends to the Mariginal revenue line for a monopoly?
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MR is below the demand curve and MR<P
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To maximize profit in a monopoly Marginal cost and marginal revenue should
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equal
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The ability of a seller to raise price without losing all demand for the product being sold
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market power
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A firm with market power that selects its price, rather than accepting the market price as a given
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Price setter
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if P>AVC
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Produce
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P<AVC
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shut down
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Why would a monopoly lose money in the long run?
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government decideds to step in and subsidize it
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When would economic profit rduce to zero in a monopoly?
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when someone else enters the market, or else it will be gaining profit indefinatly
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If the government steps into the monopoly, what happens?
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zero economic profit
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A demand will increase for three reasons in a monopoly?
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More output, Higher price, larger profit
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If a monopoly has a cost saving technology it will pass what on to the customers, also if there is a cost increase....
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Only pass part onto the customer in both situation....
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a monopoly that is Limited to charging the same price for each unit of output sold
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Single price monopoly
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Charge different prices to different customers
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Price discrimination
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3 requirements for a price discrimination?
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Firm must have market power (down facing demand curve), firm must see that the consumer is willing to pay more, and prevent low price customers from selling to high price customers
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Price discrimination will always
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benefit the owners of the firm
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What is perfect price discrimination
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charging each consumer the max price they'll pay, MR=P
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In the perfect price discrimination, MR curve will equal
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the demand curve
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3 examples of price discrimination
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college, mail-in rebates, and on sale goods
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define how financial aid is price discrimination? 3
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has market power, identifies consumers willing to pay more, able to prevent low price customers from selling to high
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How is economic efficency achieved?
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When you can't rearrange the goods to benefit one person without making everyone else worse
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At least one person is better off, and no one is harmed
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Pareto improvement
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achieved when every possible Pareto improvement is exploited.
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economic efficency
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action will benefit one group and harm another
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side payment
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Economic efficency in the demand curve? Supply curve?
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1. Max price someone would pay/unit, 2. minimum price the seller must get/unit
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Value of a unit of a good to the buyer And what the buyer actually pays for it
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Consumer surplus
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Total consumer surplus enjoyed by all consumers in a market.
Total area under the demand curve, above the market price |
MArket consumer surplus
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The area below the demand curve and above the market price=
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Consumer surplus
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Price the seller gets And the additional cost of providing it
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Producer Surplus
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Total producer surplus enjoyed by all sellers in a market.
Total area above the supply curve, below the market price |
Market Consumer Surplus
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Sum of consumer surplus and producer surplus
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Total benefits
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Total benefits are maximized
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Efficient Market
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Maximizes total benefits
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Equilibrium quantity
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this May benefit consumers as a group Reduces total net benefits in the market
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Price Ceiling
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this May benefit producers as a group Reduces total net benefits in the market
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price floor
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The loss of potential benefits due to a deviation from the efficient outcome
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Deadweight loss
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This Creates a deadweight loss
The loss in benefits to buyers and sellers is greater than the gain in revenue to the government |
Taxing an efficient market
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when tax are imposed on markets in which demand or supply is relatively inelastic they
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Create smaller dead weight loss
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5 laws in the economic role of law? CPCTA
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Criminal law, Property law, Contract Law, tort law, Antitrust Law
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People channel their efforts into mutually beneficial, voluntary exchanges
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Criminal law
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People find the most productive uses for their property
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Property law
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Productive activity and exchange
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Contract law
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Protect consumers from unsafe products
Protect businesses from unreasonable liabilities |
tort Law
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Prevent businesses from engaging in behavior that limits competition and harms consumers
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Anti-trust law
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Who does regulation protect?
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buyer seller and third party
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2 reasons why markets fail?
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Doesn't take advantage of a pareto improvement and market is economically inefficient
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Negetative externalities will- while positive...
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Cause harm to others, creates benefits to others
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Who do externalities affect?
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someone not immediately involved in the transaction
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A side payment can be arranged without cost Market will solve an externality problem on its own
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Coase theorem
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3 conditions to coase theorem?
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Legal rights must be clearly established, Legal rights are easily transferred, small group of people involved
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When the efficient outcome requires a side payment Individual gainers will not contribute
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Free rider problem
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This kind of market produces more than the efficient quantity and creates a deadweight loss
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market with neg. externalities
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3 ways the government corrects a neg. externality
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Taxes, regulations, and tradable permits
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Move a market closer to the efficient point
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Regulations
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License that allows a company to release a unit of pollution into the environment over some period of time
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Tradable permit
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a market with this will Produce less than the efficient quantity
Creates a deadweight loss |
Positive externality
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How do you correct a positive externalitie?
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Subsidizing
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One person’s consumption of a unit of a good or service means that no one else can consume that unit
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Rivalry
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The ability to exclude those who do not pay for a good from consuming it
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Excludability
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this Is both rivalrous and excludable
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Pure Private good
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Nonrival and nonexcludable
Provided by government without charge |
Pure Public good
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Excludable and nonrival
Provided by the market for a price |
marketable public good
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Nonexcludable and rival
Free of charge |
Common Resource
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One party to a transaction has relevant information not known by the other party
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Asymmetric information
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Market solutions to Asymmetric information and government solutions- 4
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reputation, behavior, and contingent contract. Gov't- regulation
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