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Chp 16-19

Terms in this set (29)

What is an oligopoly?
A market structure in which only a few sellers offer similar or identical products
What are three attributes of monopolistic competition?
many sellers
product differentiation
free entry & exit
How is monopolistic competition like monopoly?
firms face a downward sloping demand curve, so price exceeds marginal cost
How is monopolistic competition like perfect competition?
in long run price equals average total cost as free entry and exit drive economic profit to zero
How does advertising reduce economy's well being?
manipulates people's tastes
impedes competition
How might advertising increase economic well being?
inform consumers
increases competition
reduces prices
How might advertising have no apparent informational content in fact convey information to consumers?
signal of product quality, firms spend a lot on advertising if they feel their product is high quality, symbolizes high quality
Explain two benefits that might arise from the existence of brand names
1. information about the quality of product
2. firms incentive to maintain high quality
Compare the price and quantity of an oligopoly to those of a competitive market
oligopoly will produce less than those produced in a competitive market, but price will be greater than competitive market
Compare the quantity and price of an oligopoly to those of a monopoly
oligopoly will produce quantities larger than those produced in a monopoly, but the price will be less than a monopoly
How does the number of firms in an oligopoly affect the outcome of its market?
the greater number of sellers in an oligopoly, the smaller the price effect because each ind firm's impact on price is small, output increases
What is prisoners' dilemma?
A game between two captured prisoners that illustrates why cooperation is hard to maintain even when it is mutually beneficial
What does prisoner's dilemma have to do with oligopoly?
two oligopolists are better off it they cooperate by keeping production low and sharing monopoly profits
What kinds of behaviour do the antitrust laws prohibit?
prohibits firms from trying to monopolize a market. Prevent mergers that would lead to excessive market power is any firm and to keep oligopolists from acting together in ways that would make the market less competitive
Explain how the wage can adjust to balance the supply and demand for labour while simultaneously equalling the value of the marginal product of labour
any event that changes supply or demand for labour must change the eq wage and value of marginal product by same amount, bc they must always be equal. If number of workers increases, labour supply shifts upwards = surplus, putting downward pressure on wage and creating new eq
What causes labour demand curve to shift? (why would I want to hire?)
output price (p change mp changes)
technological change (raise mp, increase demand)
What can shift the supply of labour? (why would I want to work?)
changes in tastes
changing attitudes
immigration
What are compensating differentials?
difference in wages that arises to offset the nonmonetary characteristics of different jobs
In what sense is education a type of capital?
raises productivity in the future, investment, increase in marginal product
How might education raise a worker's wage without raising the worker's productivity?
signalling
degree shows high ability and effort of employee
What conditions lead to economic superstars?
1. every customer in the market wants to enjoy the good supplied by the best producer
2. good produced with a technology that makes it possible for the best producer to supply every customer at a low cost
Give three reasons why a worker's wage might be above the level that balances supply and demand.
1. min wage rate
2. market power of labour unions
3. theory of efficiency wages
Do the forces of economic competition tend to exacerbate or ameliorate discrimination on the basis of race?
tend to ameliorate discrimination on the basis of race, bc business owners who only care about making profit are at an advantage when competing against those who also care about discriminating
What causes a price floor?
above equilibrium price, creates surplus. Ex. min wage
What causes a price ceiling?
below eq price = shortage. Ex. rent control
why is productivity important?
standard of living depends on ability to produce goods and services. Increase productivity and increase standard of living
What is the production possibilities curve?
diff comb of two goods that can be produced using full employment of resources
Two causes of market failure?
externality: one person's actions on well being of other
market power: person/group to influence market price
What is the invisible hand?
free market determines equilibrium in supply and demand
follow self interest, consumers and firms can create efficient allocation of resources
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