Lessons 10-13

Lesson 10

Characteristics of monopolistic competition (MC): Significant number of sellers that sell differentiated products, conduct promotional activities, and have an easy entry and exit into the market such as fast food restaurants, convenient stores, etc. etc.

Monopolistic firms will make ZERO economic profits in the long run

Monopolistic Competition demand graph: More elastic than monopoly but not perfectly elastic like perfect competition

Monopolistic Competition marginal revenue graph: Downward sloping (market power)

MC comp graph profit: When Price (P) is below Average Total Cost (ATC) at Q*

MC graph break-even: When Price (P) is equal to Average Total Cost (ATC) at Q*

MC loss: When Price (P) is less than Average Total Cost (ATC) at Q* but above Average Variable Cost (AVC)

MC shutdown: When Price (P) is less than Average Variable (AVC) at Q*

MC Outcomes: Monopolistic breaks even in the long run, MC produces a lower quantity and charges a higher price than perfect competition, and MC does not operate at lowest ATC

MC positives results: The positive benefits of monopolistic competition allows the customers to having multiple choices through product differentiation

Lesson 11

Oligopoly characteristics: Oligopoly is a small number of firms that are pricing jointly with barriers to entry into their market. Products may be differentiated or standardized across the firms. Phones, phone service, cola, and cars are all examples of oligopoly.

What causes oligopolies: Economies of scale & mergers between firms

Concentration ratio: Percentage of sales by the top four largest firms in an industry

Herfindahl index: Alternative measure of concentration, summation of the percentage of sales squared of all firms

Dominant strategies: A strategy where a participant will make the same choice regardless of what the other player will choose.

Nash outcome: An outcome where both players are following their dominant strategies

Prisoners dilemma: A situation where players need to make a choice not knowing what other players will choose

Cartels: An agreement between firms to not compete with each other on price while moving towards the highest price outcome in order to act like a monopoly.

Conditions making cartels more stable: Small number of firms, homogeneous product, easily observable prices, little variation in price

Network Effects: Occur when people are using products in tandem with other people such as people using Facebook or MySpace

Lesson 12

Quintile: A breakdown of incomes that groups the population into 5 groups of 20% each (The lowest group, 2nd lowers, the middle, second to highest, highest group)

Lorenz curve: A graphical measuring of income distribution

Gini coefficient: A mathematical ratio between zero and 1 of income distribution calculated using the Lorenz curve, equal to Area of A, the area between the even distribution of income curve and the actual distribution curve, divided by A+B, B equaling the area below the actual distribution curve. The closer the Gini gets to 1, the more uneven distribution gets and vice versa.

US Poverty level: The 3 times the income needed in order to maintain a calorically stable diet

Absolute poverty: Minimum needed in order to survive

Relative poverty: a comparison to others income in a society

Social Security: A US government program providing income to infirm and elderly

Supplemental security and temporary relief (TANF): Aid to families falling below a certain income

Supplemental nutrition assistance: Food stamps

Earned income tax credit: Tax program to get income into low income working families

Lesson 13

Derived demand: The idea that the demand for labor comes from what the labor produces that can then be sold

Marginal revenue product: The marginal product of an additional worker multiplied by the price the output can be sold for, also equal to the wage in a competitive market

Hiring rule: A firm will continue buying labor up until the point where the MRP is equal to the cost to hire an extra unit of labor.

Wage Taker: If a firm is a wage taker, then the supply of labor is perfectly elastic.

Determinants of Labor Demand: Change in product price, marginal productivity, substitute resources, and complementary sources

Marginal Product x Price or Revenue = Wage

Marginal Product = Wage/Price or Revenue (Real wage)

Labor relations act: 1935 law that guarantees the right to form unions

Public sector unions: Unions of government workers and accounts for the largest amount of union workers

Current State of unions: Union membership has been declining

Right to Work Laws: Laws that allow workers to work without joining unions

Union Membership and Middle Class Income: As union membership has decreased, so has middle class income

Union strategies to raise wages: Strikes, limit entry into the profession, alter demand to union made products

Typical union workers make $6.50 more than non union workers while Private sector union workers make $3.20 and public sector union workers make $8.20 more. Unions increase productivity, safety, and through feather bedding, cause companies to hire more union workers.

Monopsony: Single buyer in a market

Marginal Factor Cost: The cost to hire one more worker as opposed to wage

Monopsony choice of Q labor: Where marginal revenue product equals the marginal factor cost

Bilateral monopoly: Monopsony and union in same market