ECON EXAM #

question

Utility

answer

Satisfaction

question

Marginal Utility

answer

Change in utility resulting from a change in consumption

question

Diminishing Marginal Utility

answer

Decreasing satisfaction or usefulness as additional units of a product are acquired

question

Indifference Curve

answer

All Combinations of two goods yielding the same utility. Steeper/flatter the curve the greater the preference for the X(Y) Good.

question

Budget Constraints

answer

Income. Price of Y Good. Price of X good.

question

Consumer equilibrium

answer

Bundle that maximizes the consumer's utility, holding income and prices constant. Where the Budget constraint is tangent to an indifference curve. Bang for buck

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Total Product

answer

Total output or quantity

question

Factors of production

answer

Inputs used to produce output

question

Marginal product

answer

Change in total product resulting from a change in one input holding all other inputs constant

question

Assumptions for the monopoly model

answer

Single seller, No close substitutes and barriers to entry. Firm is a price maker

question

One-graph model

answer

The firm is the market. MR decreases with output. Same y-intercept as demand but twice the slope

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Profit maximizing quantity and price

answer

MR=MC, if this price is less than AVC then shut down.

question

Monopoly Deadweight loss

answer

Demand intersects MC at a higher quantity and a lower price than MC and MR

question

Price Discrimination

answer

Charging different prices for the same good. If the difference in price can be completely described by the difference in cost then it is not price discrimination.

question

Factors influencing a firms ability to price discriminate

answer

Market power, Ability to identify different consumers by their willingness to pay, ability to prevent resale among consumers

question

Impact of price discrimination

answer

Ambiguous impact on efficiency. unambiguously increases the gains from trade accruing to producers

question

1st degree:

answer

perfect discrimination. Each consumer is charged a price equal to their maximum willingness to pay

question

2nd degree

answer

self-selection Price discrimination. All consumers choose from the same menu of options that vary in price

question

3rd degree

answer

Selection by characteristics price discrimination. Price depends on verifiable consumer characteristics. (senior discounts)

question

Total Revenue

answer

TR=P x Q

question

Marginal Revenue

answer

MR=DeltaTR/DeltaQ

question

Accounting profit

answer

TR-Explicit costs

question

Economic Profit

answer

TR-TC

question

Normal profit

answer

Zero Economic profit. exactly equal to what someone would have received from their next best alternative. No incentive to enter or exit

question

Above Normal profit

answer

Positive economic profit. Greater than what someone would have received from their next best option. encourages entry

question

Below Normal profit

answer

Negative economic profit. less than what someone would have received from their alternative. Encourages exit

question

Assumptions for the perfect competition model

answer

Many buyers and sellers. Homogenous product. Easy entry. Perfect information on prices. Firms are price takers (no market power)

question

Assumptions for Monopolistic Competition

answer

Many Buyers and sellers. Easy entry and exit. Product differentiation. Firms are price makers

question

monopolistic competition graph

answer

same as monopoly. each firm facers their own demand in a given period.

question

Nash Equilibrium

answer

Outcome for which neither player has an incentive to deviate, holding the other player constant

question

Prisoner's dilemma:

answer

Rational choice leads both players to be worse off than if they cooperated

question

Simultaneous Choice Games

answer

Each player makes a decision without knowing the decision of the other player

question

Sequential Choice games

answer

One player makes a decision after learning of the other player's dcision

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Cartalization

answer

High prices, low competition

question

Secret agreement

answer

phases of the moon

question

Tacit collusion

answer

unwritten rules. price matching

question

Oligopoly outcomes

answer

spectrum between monopoly and perfect competition.

question

Oligoply assumptions

answer

few firms. entry is difficult but not impossible. homogenous or heterogenous products. strategic interdependence. A firms profit depends on their actions and the actions of their competitors. Firms are price makers. Have market power but are restrained somewhat by competition.

1 of 38

question

Utility

answer

Satisfaction

question

Marginal Utility

answer

Change in utility resulting from a change in consumption

question

Diminishing Marginal Utility

answer

Decreasing satisfaction or usefulness as additional units of a product are acquired

question

Indifference Curve

answer

All Combinations of two goods yielding the same utility. Steeper/flatter the curve the greater the preference for the X(Y) Good.

question

Budget Constraints

answer

Income. Price of Y Good. Price of X good.

question

Consumer equilibrium

answer

Bundle that maximizes the consumer's utility, holding income and prices constant. Where the Budget constraint is tangent to an indifference curve. Bang for buck

question

Total Product

answer

Total output or quantity

question

Factors of production

answer

Inputs used to produce output

question

Marginal product

answer

Change in total product resulting from a change in one input holding all other inputs constant

question

Assumptions for the monopoly model

answer

Single seller, No close substitutes and barriers to entry. Firm is a price maker

question

One-graph model

answer

The firm is the market. MR decreases with output. Same y-intercept as demand but twice the slope

question

Profit maximizing quantity and price

answer

MR=MC, if this price is less than AVC then shut down.

question

Monopoly Deadweight loss

answer

Demand intersects MC at a higher quantity and a lower price than MC and MR

question

Price Discrimination

answer

Charging different prices for the same good. If the difference in price can be completely described by the difference in cost then it is not price discrimination.

question

Factors influencing a firms ability to price discriminate

answer

Market power, Ability to identify different consumers by their willingness to pay, ability to prevent resale among consumers

question

Impact of price discrimination

answer

Ambiguous impact on efficiency. unambiguously increases the gains from trade accruing to producers

question

1st degree:

answer

perfect discrimination. Each consumer is charged a price equal to their maximum willingness to pay

question

2nd degree

answer

self-selection Price discrimination. All consumers choose from the same menu of options that vary in price

question

3rd degree

answer

Selection by characteristics price discrimination. Price depends on verifiable consumer characteristics. (senior discounts)

question

Total Revenue

answer

TR=P x Q

question

Marginal Revenue

answer

MR=DeltaTR/DeltaQ

question

Accounting profit

answer

TR-Explicit costs

question

Economic Profit

answer

TR-TC

question

Normal profit

answer

Zero Economic profit. exactly equal to what someone would have received from their next best alternative. No incentive to enter or exit

question

Above Normal profit

answer

Positive economic profit. Greater than what someone would have received from their next best option. encourages entry

question

Below Normal profit

answer

Negative economic profit. less than what someone would have received from their alternative. Encourages exit

question

Assumptions for the perfect competition model

answer

Many buyers and sellers. Homogenous product. Easy entry. Perfect information on prices. Firms are price takers (no market power)

question

Assumptions for Monopolistic Competition

answer

Many Buyers and sellers. Easy entry and exit. Product differentiation. Firms are price makers

question

monopolistic competition graph

answer

same as monopoly. each firm facers their own demand in a given period.

question

Nash Equilibrium

answer

Outcome for which neither player has an incentive to deviate, holding the other player constant

question

Prisoner's dilemma:

answer

Rational choice leads both players to be worse off than if they cooperated

question

Simultaneous Choice Games

answer

Each player makes a decision without knowing the decision of the other player

question

Sequential Choice games

answer

One player makes a decision after learning of the other player's dcision

question

Cartalization

answer

High prices, low competition

question

Secret agreement

answer

phases of the moon

question

Tacit collusion

answer

unwritten rules. price matching

question

Oligopoly outcomes

answer

spectrum between monopoly and perfect competition.

question

Oligoply assumptions

answer

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ECON EXAM #

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