ECO Final

Question 1

Price under imperfect competition

Answer 1

Market equilibrium under imperfect competition can occur at many points on the demand curve

draw graphical expression

Question 2

Market structure spectrum and characteristics

Answer 2

1) Perfect Competition: Many firms, many buyer, identical products, and easy entry and exit

2) Monopolistic Competition: Market in which each firm faces a downward slopping demand curve and no barriers to entry

3) Oligopoly: Few firms, differentiated products, barriers to entry

4)Monopoly: One firm, one product type, no entry

Question 3

Marginal Productivity Theory

Answer 3

-Price is determined by the cost of the marginal producer.

draw graphical expression

Question 4

The substitution effect

Answer 4

-The substitution of one input for another while holding output constant in response to change in the inputs price.

draw graphical expression

Question 5

Monopsony

Answer 5

When a firm is the only hirer in a particular input market

Question 6

PV

Answer 6

Discounting the value of future transactions back to the present day to take account of the effect of potential interest payments

FV/(1+r)^n

r= rate of return
n= number of periods

Question 7

FV

Answer 7

the value of current assets at a specific date in the future based on assumed rate of growth

PV(1+r)^n

Question 8

Net PV

Answer 8

-The sum of future cash flows over the investments lifetime, discounted to the present value

NPV= CF/(1+r)^t

also known as initial investment

Question 9

Moral Hazard

Answer 9

When obtaining insurance against an adverse outcome leads to changes in behavior that increase the likelihood of the outcome occuring

Question 10

Profit maximization bundle with 1 vs 2 consumer types

Answer 10

draw graphical expression

Question 11

How to Reduce Externality Costs

Answer 11

1)Taxation
2)Regulation
3)Legal Redness

Question 12

Pigouvian Tax

Answer 12

A tax levied on each unit of an external generators output in an amount equal to the marginal damage at the efficient level of output

Question 13

Behavioral Economics and its 3 limits

Answer 13

the study of economic behavior that departs from full rationality

1) Limit of cognitive ability
2) Limit of willpower
3) Limit of self-interest