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25 Cards in this Set
- Front
- Back
price taker |
existing in a competitive market, a price taker cannot affect market price. |
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risk |
type of uncertainty in which the costs or benefits of an event or choice are uncertain but calculated |
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diseconomies of scale |
it occurs when increasing the scale of production to obtain higher output raises the minimum of the average total cost |
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collusion |
when businesses work together to control the price and quantity of the goods that they sell |
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market power |
when one side of an economic transaction has the ability to affect price |
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information asymmetry |
it occurs when one side of an economic transaction knows more than the other side |
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marginal product |
it is any increase in output generated by an additional unit of input |
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variable costs |
costs that increase with the level of production including such inputs as labor and raw materials |
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nash equilibrium |
when players chose a strategy that works best for them no matter what the opposing side choses to do |
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moral hazzard |
the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions after an agreement has been made |
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total revenue |
quantity multiplied by price per unit |
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how are interest ratea used to assist people in making investment choices? |
when considering money today versus future money, individuals consider the opportunity cost of waiting until the future to receive the money. the interest rate tells how today's money worth in the future |
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list and describe 3 common features of a game |
rules: define the actions that are allowed in a game. government establish rules for how businesses can operate strategies : are the plans of action that players follow to achieve their goals payoffs : are the rewards that come from particular actions |
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what are fixed costs? how do fixed vosts affect a business even it has decided to stop producing |
fixed costs are the costs that do not depend on the quantity of output produced example rent even if a firm produces nothing, it still incurs a fixed cost |
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list 4 characteristics of a competitive market |
full information exists buyers and sellers are price takers the good or service is standardized firms freely enter and exit the market |
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how can a commitment strategy (like collusion) allow players to achieve greater benefits? |
to maximize the benefits the olayers agree to submit to some penalty in the future if they defect from the commitment strategy: this is the strategy employed by businesses who conspire to keep prices artificially high |
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why are insurance companies better ablr to handle the same risk |
insurance is an agreement in which an individual pays a regular fee an insurance company covers costs associated with a specific event occurring. insurance companies pool individuals together called risk pooling . they use diversification in which risks are shared cost across many different assets or people |
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economies of scale |
if increasing the scale of production to obtain higher output lowers the minimum of the average total cost then economied of scale occur |
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why compounding can be an incentive to invest |
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if a firm experiences diminishing marginal product does that mean that total output decreases? |
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explicit costs |
they are composed of the fixed and varible cost these are explicit costs that requires a firm to spend money |