Econ Final

Question 1

Imperfectly competitive firm

Answer 1

Firm (price setter) has solo control over price of product

Question 2

Pure monopoly

Answer 2

The only supplier of a unique product w/ no close substitutes

Question 3

Monopolisitic competition

Answer 3

An industry structured where a large number of firms produce slightly different products

Question 4

Oligopoly

Answer 4

Industry structure where a small number of large firms produce products that are close or perfect substitutes

Question 5

5 Sources of market power

Answer 5

Exclusive control over inputs, patents and copyrights, Govt licenses, economies of scale/natural monopolies, Network economies

Question 6

What is an External Cost?

Answer 6

someone’s action hurts others (pollution, noise).

Question 7

What is an external benefit?

Answer 7

someone’s action helps others (vaccines, research)

Question 8

Government fixes to Negattive externalities?

Answer 8

Tax the harmful behavior

Question 9

Government fixes to positive externalities?

Answer 9

Subsidy

Question 10

What is price discrimination?

Answer 10

Charging different prices to different customers not based on cost differences.

Question 11

What is a natural monopoly?

Answer 11

Huge fixed costs → average cost falls as output rises.

Question 12

What is the Nash Equilibrium?

Answer 12

No player wants to change strategy given the other’s choice.

Question 13

What is dominant strategy?

Answer 13

One that yields a higher payoff no matter what the other players in the game choose

Question 14

Strategic interdependence

Answer 14

One firm’s choice affects others.

Question 15

Why is a prisoners dilenma bad?

Answer 15

It doesn’t encourage co-operation

Question 16

What is the Bertrand Model?

Answer 16

firms compete by choosing prices, not quantities.

Question 17

What does the Cournot model predict?

Answer 17

Price between monopoly and competitive levels.

Question 18

What is a pure public good?

Answer 18

Non-rival + non-excludable.

Question 19

Why do markets underprovide public goods?

Answer 19

Free riders.

Question 20

What does the Coase theorem say?

Answer 20

With clear rights and zero transaction costs, negotiation solves externalities.

Question 21

When does Coase fail?

Answer 21

Many people, unclear rights, high costs, or coordination difficulty.