Econ Study Guide: Understanding Pure Monopoly and Market Dynamics

what is a pure monopoly?

a single seller with complete control over a market

which of the following is NOT a common barrier to entry in monopolistic markets?

perfect market information

what is simultaneous consumption in economic terms?

when multiple people can use a product at the same time without diminishing its value.

network effects occur when?

a product’s value increases as more people use it.

what is X-inefficiency?

the excess costs due to lack of competitive pressure.

rent-seeking behavior refers to

attempts to increase wealth without creating new value

which type of price discrimination involves charging different prices to different customer groups?

third-degree price discrimination

the socially optimal price in a monopoly market is where

price equals marginal cost

what characterizes a fair-return price?

price that covers costs plus reasonable return

which factor most likely indicates the presence of network effects

increasing value with user base growth

a natural monopoly typically exists when

government grants exclusive rights

price discrimination is most effective when

different groups have different price elasticities

what is the primary criticism of monopolistic rent-seeking?

it wastes resources on unproductive activities

the deadweight loss in a monopoly results from

output restriction and higher prices

which is NOT a typical characteristic of a pure monopoly?

multiple close substitutes

network effects are most commonly seen in

social media platforms

what typically happens to consumer surplus in a monopoly

it decreases compared to perfect competition

the fair return price regulation aims to

ensure reasonable but not excessive profits

which best describes simultaneous consumption of digital goods

multiple users can consume without depletion

x-inefficiency is most likely to occur when

market pressure is minimal

what is the main characteristic that distinguishes monopolistic competition from perfect competition

product differentiation

in a monopolistically competitive market, excess capacity refers to

the ability to produce more than the market demands

the four firm concentration ratio measures

the market share of the largest four firms in the industry

which index provides a more comprehensive measure of market concentration than the four firm concentration ratio

the herfindahl index

in an oligopolistic market mutual interdependence means

each firms decisions affect and are affected by other firms’ actions

a kinked demand curve in oligopoly explains why

prices tend to be rigid

product differentiation in monopolistic competition can include all of the following EXCEPT

identical products

what is synergy in the context of oligopolistic markets

when combined firms create greater value than separate firms

game theory in oligopolistic markets helps explain

strategic decision making considering competitors reactions

a price war in an oligopolistic market typically results in

reduced profits for participating firms

what is the primary characteristic of a homogenous oligopoly

products are essentially identical

nonprime competition includes which of the following

advertising and product features

in oligopolistic markets, price leadership occurs when

one firm’s price changes are followed by others

import competition affects domestic oligopolies by

reducing market power of domestic firms

a cartel is characterized by

agreement among firms to control price or output

interindustry competition refers to

competition between similar products in different industries

the primary goal of product differentiation is to

create unique value in consumers’ minds

strategic behavior in oligopolistic markets involves

considering competitors’ potential responses

the primary difference between differentiated and homogenous oligopoly is

the level of product differentiation

which factor most likely indicates strong oligopolistic competition

high market concentration among few firms

what is the primary goal of monetary policy implemented by the federal reserve

controlling inflation and price stability

which of the following is a tool of monetary policy

open market operations

the federal funds rate is

the rate at which banks lend to each other overnight

fiscal policy is primarily controlled by

congress and the president

what typically happens to interest rates when the fed implements contractionary monetary policy

interest rates increase

which of the following is an example of expansionary fiscal policy

increasing government spending

the term “quantitative easing” refers to

large scale asset purchases by the Fed

what is the main purpose of reserve requirements

to ensure banks maintain adequate liquidation

during a recession, which combination of policies might the government implement

lower interest rates and increased spending

the discount rate is

the rate at which the fed lends to commercial banks

what is the purpose of the federal reserve’s dual mandate

to maintain price stability and maximum employment

which of the following is NOT a tool of fiscal policy

reserve requirements

when the fed engages in open market operations by selling securities, what happens to the money supply

it decreases

what is the primary difference between monetary and fiscal policy

controlling authority

during period of high inflation, the fed is likely to

raise interest rates

the term “crowding out” refers to

private investment reduced by government borrowing

which policy tool has typically the quickest impact on the economy

changes in interest rates

what is the main criticism of discretionary fiscal policy

implementation lag

the federal reserve’s independence means

it makes monetary policy decisions without political pressures

which statement about monetary policy is correct

it works primarily through interest rates and money supply