Econ 120 LCC Exam Study Guide Questions With 100% Correct Answers Verified Correct And Trusted Solutions.

Four Ways Monopolistic Competition Firms Differentiate Products: - correct answers1. Physical Aspects of a product, Location a product is sold from, Intangible Aspects of a product, Perceptions of a product. Short Run/Long Run dynamics that lead to Zero Economic Long Run Profit in Monopolistic Competition - correct answers In the long run there is zero economic profit because as more firms enter, the demand curve moves further and further to the left, until price is equal to average total cost. In Short run you are losing economic profit because of increased competition. What does demand curve for Perfect competition look like? - correct answers A straight horizontal line. What does the demand curve for monopolistic competition look like? - correct answers More to left, slanted, so price is equal to ATC Define Excess Demand - correct answers A situation in which the market demand for a commodity is greater than its market supply, thus causing the market price to rise. Define Excess Capacity - correct answers A situation in which a firm is producing at a lower capacity then it is designed for. Define Oligopoly - correct answers When a few large firms have all or most of the sales in an industry. Define Duopoly - correct answers When there are only two firms in an Oligopoly. Define Prisoners Dilemma - correct answers A game in which the gains from cooperation are larger than the rewards from pursuing self-interest. Define Oligopoly Temptation - correct answers When oligopoly firms in a certain market decide what quantity to produce and what price to charge, they face a temptation to act as if they were a monopoly. When firms act together in this way to reduce output and keep prices high, it is called collusion. Kinked Demand Curve - correct answers a perceived demand curve that arises when competing oligopoly firms commit to match price cuts, but not price increases Six Challenges to Collusion in an Oligopoly - correct answers1. Large Numbers 2.Complex Products and Pricing Schemes 3.Differences in Interests 4.Bargaining Power of Buyers 5.Legal and Political Pressure 6. Egos of top Executives. Define HHI - correct answers Measure of market concentration Define Four Firm Concentration Ratio - correct answers The proportion of total output in an industry produced by the four largest firms in an industry. Cost- Plus Regulation - correct answers Refers to government regulation of a firm which sets the price that a firm can charge over a period of time by looking at the firm's accounting costs and then adding a normal rate of profit. price cap regulation - correct answers When the regulator sets a price that a firm cannot exceed over the next few years Regulatory Capture - correct answers when the supposedly regulated firms end up playing a large role in setting the regulations that they will follow and as a result, they "capture" the people usually through the promise of a job in that "regulated" industry once their term in government has ended. Four Restrictive Practices Antitrust laws seek to Prohibit - correct answers1. Minimum Resale Price Maintenance Agreement 2. Exclusive Dealing 3. Tie-in sales 4. Predatory Pricing Nationalization - correct answers Nationalization refers to when a government takes control of a company or industry, which generally occurs without compensation for the loss of the net worth of seized assets and potential income. Privatization - correct answers The transfer of ownership, property or business from the government to the private sector. Absolute Advantage - correct answers a country has an absolute advantage over another country in producing a good if it uses fewer resources to produce that good. Comparative Advantage - correct answers When a country can produce a good at a lower cost in terms of other goods, or when a country has a lower opportunity cost of production. Splitting up the Value Chain - correct answers Recent trend in trade when many of the different stages of producing a good happen in different geographic locations. Sources of Comparative Advantage - correct answers1. Difference in Climate 2. Difference in Technology 3. Difference in Factor Endowments Autarky - correct answers A situation in which a country cannot trade with other countries World Trade Organization - correct answers Organization that seeks to negotiate reductions in barriers to trade and to adjudicate complaints about violations of international trade policy; successor to the General Agreement on Tariffs and Trade Heckscher-Olin Model - correct answers A country has comparative advantage in a good whose production is intensive in factors that are abundantly available in that country. Three Types of Protectionism Tools - correct answers1. Tariffs 2. Import Quotas 3. Non-tariff Barriers Why do governments prefer Tariffs over Quotas? - correct answers Governments get money out of Tariffs. They don't get Tariffs out of quotas. What are the important environmental issues of today? - correct answers Air and Water Pollution Hazardous waste disposal Destruction of wetlands and inhabitants Global Warming Extinct Species Problems with Command and Control Regulations - correct answers1. Command and Control Regulations offer no incentive to improve the Environment 2. Command and Control Regulations are Inflexible 3.Command and Control Regulations are set by Legislators and Bureaucrats Market Friendly Tool #1 - correct answers Pollution charge: A tax imposed on the quantity of pollution that a firm emits. Market Friendly Tool #2 - correct answers Marketable Permits: A license that allows a firm to emit certain amounts of pollution, where firms with more permits than the pollution level they cause sell the surplus permit to others. Market Friendly Tool #3 - correct answers Well Defined Property Rights 4 Interventions to address International Environmental Issues? - correct answers High Income Countries (HICs) pay Low Income Countries (LICs) to reduce emissions of greenhouse gases. 2. High Income Countries promote tourism to Low Income Countries 3. High Income Countries transfer modern pollution control technologies to Low Income Counties 4. Marketable Permit between High Income Countries Government and Low Income Countries Government (The Kyoto Protocol). Positive Global, Adverse Local - correct answers Global warming wanes but the local firm in Lansing that purchases international permits from Timbuktu will pollute local atmosphere and adversely affect the health residents of Lansing. Positive Externality - correct answers A situation where a third party, outside the transaction, benefits from a market transaction by others. Negative Externality - correct answers A situation where a third party, outside the transaction suffers from a market transaction by others. Basic Research - correct answers The research for fundamental scientific breakthrough that may offer commercial applications only in distant future. Applied Research - correct answers Research focused on a particular product that promises an economic pay off in the short to medium-term funded by private firms. Public Good - correct answers A nonexcludable and nonrivalrous good and thus difficult for market producers to sell to individual consumers. Private Good - correct answers A good that can be bought and sold fairly easy because it is a separate and identifiable item. Nonexcludable Good - correct answers When it is costly or impossible to exclude someone from using the good, and thus hard to charge for it. Nonrivalrous Good - correct answers A good that when one person is using it, others can use it also. Free Rider - correct answers Those who want others to pay for the public good and then plan to use the good themselves; If many people act as free riders, the public good may never be provided. Why is labour called a derived demand? - correct answers The value of labour to the employer derives from the value of the end product in the marketplace for goods and services. Marginal Revenue Product - correct answers the change in total revenue associated with one additional unit of input Marginal Product of Labor - correct answers the additional output a firm produces as a result of hiring one more worker Marginal Revenue Equation - correct answers MR=∆TR/∆Q Hurdle Rate - correct answers The minimum rate of return on a project or investment required by a manager or investor. Six Reasons for Wage Disparity - correct answers1. Compensating differentials 2.Difference in talent 3. Quantity and quality of human capital 4.Market power 5.Efficiency-wage model 6.Discrimination Labor Union - correct answers An organization of workers that tries to improve working conditions, wages, and benefits for its members Define Opportunity cost - correct answers the loss of potential gain from other alternatives when one alternative is chosen. The Basic Circular Flow Diagram - correct answers illustrates the interaction between households and firms in a simplified free market economy.