Study Guide for Exam 5 microeconomics

What is price discrimination?

when a firm charges different customers different prices for the

exact same product.

What is necessary for price discrimination?

1. they must be able to easily differentiate their

   customers

2. the product must not be transferrable.

3. they must also have market power to control the price and quantity of a product sold.

Is price discrimination a good thing?

price discrimination is a good thing since there is an

increase in total welfare (consumer + producer surplus)

what is third degree discrimination?

different group of people get a different price for the same item.

what is second degree discrimination?

bulk buying is cheaper then buying the item individually.

what is a guild?

group of people with something in common form a bargaining unit.

what is first degree discrimination?

every business charges each consumer the maximum price they are willing and able to pay for a product or service.

What are some characteristics of oligopolies?

1. Oligopolies have high barriers to entry

2. substantial market power

3. identical or

differentiated products

4. they can make economic profits indefinitely.

5. they use game theory

How do we calculate the HHI?

1. we take the market share of each firm in the industry.

2. square

   the percentage number

3. after squaring, add all of them.

4. The values would range theoretically from 0 to 10,000.

5. The higher the number, the more concentrated the industry.

What do firms in an oligopolistic industry have to consider?

Oligopolistic firms tend to make decisions based on what their competitors do.

In the prisoner’s dilemma, what do the players individually have an incentive to do?

Each prisoner has an incentive to “defect”, which means to cheat on the other partner.

What is collusion?

the act of working together

What are some characteristics of a monopolistically competitive firm? (mc firm)

1. there are many sellers

1. their products are differentiated

2. there are low barriers to entry

What does it mean for labor to be a derived demand?

the demand for labor comes from the demand for

the product they sell.

What are unions?

Unions are collections of workers who join together to try to bargain for better wages and working conditions

What are some benefit of having unions?

unions is the added power of a large collective unit. This power can be used to combat market abuse by a firm with excess market power.

what are the cost of having unions?

the dues the workers must pay and the added bureaucracy.

what are conglomerate?

a bunch of divisions from the same company but aren’t related to each other.

what is a monopsony?

one buyer

what is MPP

marginal physical product

what is MR

marginal revenue

what is MRP

marginal revenue product

what is the equation for MRP

MPP x MR

when should the business stop hiring (optimal amount of worker)

when MRP = MFC

a worker MRP (it what determines their pay) can rise if..

the firm; marginal physical product increases and/or if their marginal revenue increases.

What is a marginal factor cost?

the cost of employing a factor. For a worker, the marginal

factor cost is the wage.

what is the equation for total income of an individual

Total income = earned income + asset income + transfers – taxes

How might we measure income inequality?

1. by looking at quintiles of the population

2. looking at the gap between a Lorenz curve and a line of equality.

3. calculate the Gini coefficient.

What values can the Gini coefficient take?

1. The Gini coefficient can take on values between 0 and 1

what number is perfect equality

when it is 0

what would it mean if the Gini coefficient is 1?

it means one person have all the income.

The higher the Gini coefficient is _

the more unequal the distribution of income is.

What is the progressive income tax system intended for?

meant to help redistribute income to the lower end

from the upper end to reduce income inequality.

what are two ways to look at poverty

absolute scale and relative scale

pro and con of relative scale

pro: we judge ourself in relation to other

cons: someone is always consider in poverty

pro and cons of absolute scale

pro: allows for more assistance if anyone needs it

cons: doesn’t take inflation well

when does DOJ look at HHI for?

when a company wants to buy out their competitor.

what is horizontal integration

when a company merge or buy a direct competitor

what are positive effect of monopoly

can make economic profit, which can fund research and development for new and better product.

what is the difference between PC firm and MC firm

PC firm sells identical products but MC firms sell differentiated product.