Untitled Flashcards Set

What is a Price-Taking Firm?

A firm that cannot influence the market price of its product and must accept the prevailing price.

What characterizes a Monopolist?

A firm that is the sole producer of a good or service with no close substitutes, giving it the power to set prices.

What is meant by Price Taker?

A buyer or seller that has no control over the market price and must accept the price set by the market.

Define a Perfectly Competitive Market.

A market with many buyers and sellers, identical products, no barriers to entry or exit, and perfect information.

What is a Perfectly Competitive Industry?

An industry where all firms are price takers and produce homogeneous goods.

What does Free Entry and Exit mean in a market?

The condition where firms can freely enter or exit the market without significant barriers.

What is a Natural Monopoly?

A market where a single firm can produce at a lower cost than multiple firms due to economies of scale.

Describe an Oligopoly.

A market structure with a few large firms dominating the market, often interdependent.

What does the HHI (Herfindahl-Hirschman Index) measure?

A measure of market concentration calculated by summing the squares of each firm’s market share.

What is Monopolistic Competition?

A market structure with many firms producing similar but differentiated products.

Define Marginal Revenue.

The additional revenue generated from selling one more unit of a good or service.

What does the Marginal Revenue Curve show?

A curve showing how marginal revenue changes as output increases.

Explain what is meant by Interdependent in market terms.

A situation in which firms’ decisions affect each other’s outcomes.

What is a Duopoly?

A market with only two firms.

What is a Cartel?

A group of firms that collude to limit output and increase prices, acting like a monopoly.

Define Collusion in a market context.

An agreement among firms to limit competition.

What is Noncooperative Behavior among firms?

Firms acting in their own self-interest rather than cooperating.

What is Game Theory?

The study of strategic decision-making.

What is a Payoff Matrix?

A table showing the outcomes of different strategies in a game.

What does the Prisoner’s Dilemma illustrate?

A game where individual rationality leads to a worse collective outcome.

Define Dominant Strategy.

A strategy that yields the best payoff regardless of the opponent’s actions.

What is Nash Equilibrium?

A situation where no player can improve their outcome by unilaterally changing their strategy.

Explain the Tit for Tat strategy.

A strategy where a player replicates the opponent’s previous move to encourage cooperation.

What is Tacit Collusion?

Firms indirectly coordinate actions without explicit agreements.

What does Antitrust Policy aim to achieve?

Laws and regulations designed to prevent anti-competitive behavior and promote competition.

How do firms use Product Differentiation in Oligopoly?

Firms make products slightly different to reduce competition.

Define Marginal Social Cost.

The total cost to society of producing an additional unit of a good, including external costs.

What is Marginal Social Benefit?

The total benefit to society from consuming an additional unit of a good, including external benefits.

What are External Costs?

A cost incurred by third parties due to production or consumption of a good.

What are Externalities?

Side effects of production or consumption that affect third parties.

Define Negative Externalities.

Costs imposed on others (e.g., pollution).

What are Positive Externalities?

Benefits conferred on others (e.g., education).

What does the Coase Theorem propose?

Suggests that private bargaining can resolve externalities if property rights are well-defined and transaction costs are low.

What is an Emissions Tax?

A tax on the amount of pollution emitted to internalize external costs.

Define Pigouvian Tax.

A tax designed to correct negative externalities.

What are Tradeable Emissions Permits?

Permits that allow a firm to emit a certain amount of pollution, which can be traded in a market.

What is a Pigouvian Subsidy?

A subsidy designed to encourage activities with positive externalities.

What does Technology Spillover refer to?

Positive externalities from technological innovation.

What are Network Externalities?

Benefits that increase as more people use a good or service.

Define Positive Feedback.

A situation where a product becomes more valuable as its adoption increases.

What does it mean for a good to be Excludable?

A good is excludable if people can be prevented from using it.

What is meant by Nonrival in Consumption?

One person’s consumption does not reduce the availability for others.

Define Private Good.

A good that is rival in consumption and excludable.

What does Nonexcludable mean?

A good that people cannot be prevented from using.

What are Public Goods?

Nonexcludable and nonrival in consumption (e.g., public sewer system).

Define Common Resources.

Nonexcludable but rival in consumption (e.g., fish stocks).

What are Artificially Scarce Goods?

Excludable but nonrival in consumption (e.g., on-demand TV).

What is the Free Rider Problem?

When people benefit from a good without paying for it.

What does Overuse refer to in a resource context?

Excessive use of a common resource, leading to depletion.

What are Government Transfers?

Payments by the government to individuals without requiring goods or services in return.

What are Poverty Programs?

Programs designed to reduce poverty.

What are Social Insurance Programs?

Programs providing protection against economic risks.

Define Means-Tested programs.

Programs where eligibility depends on income level.

What does In Kind benefits mean?

Benefits provided as goods or services rather than cash.

What is the difference between Medicare and Medicaid?

Medicare provides healthcare for the elderly; Medicaid provides for low-income individuals.

What is the Gini Coefficient?

A measure of income inequality.

Define Marginal Product of Labor (MPL).

The additional output produced by one more unit of labor.

What is the Value of the Marginal Product (VMPL)?

Price times the marginal product of labor.

What are the Shifters of the Factor Market Curve?

Change in price of goods, change in supply of other factors, change in technology.

What is Physical Capital?

Machinery, buildings, and tools used in production.

Define Human Capital.

Skills and knowledge of workers.

What does Land refer to in an economic context?

Natural resources used in production.

What is Labor in economic terms?

Human effort used in production.

What is the Marginal Productivity Theorem?

Firms hire until the marginal product equals the marginal cost of labor.

What are Compensation Differentials?

Wage differences based on job characteristics.

Explain the Work vs. Leisure concept.

A tradeoff between earning income and enjoying free time.

What does the Individual Labor Supply Curve show?

How an individual’s labor supply changes with wages.

What factors can Shift the Labor Supply Curve?

Change in preferences or social norms, change in population, change in opportunities, change in wealth.

What is the Marginal Revenue Product of Labor (MRPL)?

MPL times marginal revenue.

What is a Monopsony?

A market with a single buyer of labor.

What does the Cost Minimization Rule state?

Firms hire factors in a way that minimizes cost for a given output.

What is Private Information?

Information that one party in a transaction knows but the other does not.