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35 Cards in this Set
- Front
- Back
What is a duopoly?
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Industry in which there are only 2 producing firms
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What is a Collusion?
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Sellers cooperate to raise each other's profits
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What is a Cartel?
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An agreement by several producers that increases their combined profits by telling each one how much to produce
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What are the two effects of producing an additional unit of a good
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1. A positive quantity effect - one more unit is sold, increasing total revenue by the price at which that unit is sold.
2. A negative price effect - in order to sell one more unit, the monopolist must cut the market price on all units sold. |
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Noncooperative Behavior
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Each firms acts in their own self interest
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Oligopoly
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Industry with only a small number of producers
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Imperfect Competition
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No one firm has market power, but producers realize they can affect market prices
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Game Theory
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Study of behavior in situations of interdependence
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Nash Equilibrium
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Result when each player in a game chooses the action that maximizes his or her payoff given the actions of other players, ignoring the effects of his or her action on the payoffs received by those other players
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Strategy of Tit for Tat
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Involves playing cooperatively at first, then doing whatever the other player did in the previous period
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Tacit Collusion
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When firms limit production and raise prices in a way that raises each others' profits, even though they have no made any formal agreement
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Kinked Demand Curve
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An oligopolist who believes she will lose a substantial number of sales if she reduces output and increases her price but will gain only a few additional sales if she increases output and lowers her price, away from the tacit collusion outcome, faces a kinked demand curve
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Antitrust Policy
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refers to the efforts of the government to prevent oligopolistic industries from becoming or behaving like monopolies
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Price War
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Occurs when tacit breaks down and prices collapse
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Marginal social cost of pollution
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additional cost imposed on society as a whole by an additional unit of pollution
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marginal social benefit of pollution
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additional gain to society as a whole from an additional unit of pollution
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socially optimal quantity of pollution
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the quantity of pollution that society would choose if all the costs and benefits of pollution were fully accounted for
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socially optimal point
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point on graph where the MSC and the MSB lines cross
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external cost
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an uncompensated cost that an individual or firm imposes on others
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external benefit
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a benefit that an individual or firm confers on others without receiving compensation
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externalities
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external costs and benefits
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negative externalities
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external costs
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positive externalities
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external benefits
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coase theorem
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even in the presence of externalities an economy can always reach an efficient solution as long as transaction costs--the costs of individuals of making a deal--are sufficiently low
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pigouvin taxes
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taxes designed to reduce external costs
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Technology spillover
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external benefit that results when knowledge spreads among individuals and firms
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marginal social benefit of a good or activity
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is equal to the marginal benefit that accrues to consumers plus its marginal external benefit
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pigouvian subsidy
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a payment designed to encourage activities that yield external benefits
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industrial policy
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a policy that supports industries believed to yield positive externalities
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excludable good
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the supplier of that good can prevent people who do not pay from consuming it
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rival in consumption
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the same unit of the good cannot be consumed by more than one person at the same time
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nonexcludable
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supplier cannot prevent consumption by people who do not pay for it
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nonrival in consumption
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more than one person can consume the same unit of the good at the same time
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private goods
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rival in consumption, excludable
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artificial scarce goods
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excludable, nonrival in consumption (pay per view movies, computer software)
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