unit 4 microecon

What is the outcome when airlines engage in price discrimination?

It generally leads to more customers riding, filling more seats and increasing overall revenue.

What happens when a price-making firm (monopoly) discriminates?

Society is better off as more consumers are served, maximizing overall welfare even as producers capture more surplus.

What is the dominant strategy in competitive scenarios according to game theory?

To fight, such as by maintaining lower prices or engaging in marketing wars.

What does the bottom right of the decision matrix represent?

The Pareto efficient outcome, where neither player can improve their situation without making the other worse off.

In a monopolistically competitive market, what can happen in the short run?

There can be economic profit due to lower barriers to entry.

Why should a diner choose to invest resources in cleaning the dining area?

Because the dining area enhances customer experience, leading to higher satisfaction and retention.

How do monopolies generally compare to oligopolies in terms of pricing?

Monopolies charge higher prices due to lack of competition, while oligopolies may keep prices lower to avoid price wars.

What effect does a 20% increase in the price of apples have for a family earning $150,000?

It creates a substitution effect, leading them to consider less expensive alternatives.

What is the consumer's willingness to pay for the burger compared to the pizza?

The consumer might be willing to pay $15 more for the burger due to its higher utility.

What assumption do economists make in behavioral economics regarding people's decisions?

People are predictably irrational, often deciding based on emotions or cognitive biases.

What shape does the indifference curve for socks and shoes typically take and what does it indicate?

It is close to a vertical curve, indicating a strong preference for both goods with low willingness to substitute.

What begins to occur with diminishing marginal utility?

It starts when the difference in total utility begins to decrease as more units are consumed.

What is an example of the gambler's fallacy?

Believing that a number that hasn't hit in a while is due, misrepresenting probability.

What is true about risks and risk preferences?

All activities involve probability and risk, with preferences varying among individuals.

What happens when the price of a particular house rises by 5%?

It creates both a substitution effect and an income effect.

What is the Pareto efficient outcome if players do not confess?

It is the optimal outcome maximizing mutual benefit without cost to either.

What does advertising do for the monopolistic competitor in the long run?

It does not necessarily increase profits in the long run.

How do unlimited data plans exploit diminishing marginal utility?

Users may not perceive additional usage as valuable after a certain point.

What is the Nash equilibrium?

The situation where players will not switch their strategies given the status quo.

What does backward induction involve?

Strategically planning future moves by anticipating the opponent's actions.

What bias and aversion does the status quo bias indicate?

A preference for the current state over change, even if change could yield better outcomes.

What is an example of perfect price discrimination?

A golf instructor charging each customer the maximum they are willing to pay.

What do lottery ticket holders exhibit when they refuse to sell their tickets for more than face value?

Regret avoidance, preferring to keep the ticket in hope of winning.