Details Title: ch 7-9 Description: review Total Flash Cards: 46 Created: 12/06/2008 17:37:47		New Users: To study from this flashcard set, or to create your own your own study flash cards, REGISTER HERE. Existing Users: CLICK HERE. Additional Economics Flashcards
Cards in this set: Term monopoly Definition a market in which a single firm sells a product that does not have any close substitutes Term market power Definition the ability of a firm to affect the price of its product Term barrier to entry Definition something that prevents firms from entering a profitable market Term patent Definition the exclusive right to sell a new good for some period of time Term network externalities Definition the value of a product to a consumer increases with the number of other consumers who use it Term natural monopoly Definition a market in which the economies of scale in production are so large that only a single large firm can earn a profit Term rent seeking Definition the process of using public policy to gain economic profit Term price discrimination Definition the practice of selling a good at different prices to different consumers Term monopolistic competition Definition a market served by many firms that sell slightly different products Term oligopoly Definition a market served by a few firms Term game theory Definition the study of decision making in strategic situations Term marginal principle Definition increase the level of an activity as long as its marginal benefit exceeds its marginal cost. choose the level at which the marginal benefit equals the marginal cost Term product differentiation Definition the process used by firms to distinguishing their products from the products of competing firms Term concentration ratio Definition the percentage of the market output produced by the largest firms. Term duopoly Definition a market with two firms Term cartel Definition a group of firms that act in unison coordinating their price and quantity decisions Term price fixing Definition an arrangement in which firms comspire to fix prices Term game tree Definition a graphical representation of the consequences of different actions in a strategic setting Term dominant strategy Definition an action that is the best choice for a player, no matter what the other player does. Term duopolists' dilemma Definition a situation in which both firms in a market would be better off if both chose the high price, but each chooses the low price Term nash equilibrium Definition an outcome of a game in which each player is doing the best he or she can, given the action of the other players Term low price guarantee Definition a promise to match a lower price of a competitor Term grim trigger stategy Definition a strategy where a firm respons to underpricing by choosing a price so low that each firm makes zero economic profit Term tit for tat Definition a strategy where one firm chooses whatever price the other firm chose in the preceding period Term limit pricing Definition the strategy of reducing the price to deter entry Term contestable market Definition a market with low entry and exit costs Term marginal principle Definition increase the level of an activity as long as its marginal benefit exceeds its marginal cost. choose the level at which the marginal benefit equals the marginal cost Term trust Definition an arrangement under which the owners of several complnies transfer their decision-making powers to a small group of trustees Term merger Definition a process in which two or more firms combine their operations Term tie in sales Definition a business practice under which a business requires a consumer of one product to purchase another product Term predatory pricing Definition a firm sells a product at a price below its production cost to drive a rival out of business and then increases the price Term asymmetric information Definition a situation in which one side of the marker- either buyers or sellers - has better information than the other Term mixed market Definition a market in which goods of different qualities are sold for the some price Term adverse selection problem Definition a situation in which the unimformed side of the market must choose from am undesirable or adverse selection of goods Term thin market Definition a market in which some high quality goods are sold but fewer than would be sold in a market with perfect information Term moral hazard Definition a situation i which one side of an ecomonic relationship takes undesirable or costly actions that the other side of the relationship cannot observe Term external benefit Definition a benefit from a good experienced by someone other than the person who buys the good Term public good Definition a good that is available for everyone to comsume regardless of who pays and who doesn't ; a good that is nonrival in consumption and nonexcludable Term private good Definition a good that is consumed by a single person or household; a good that is rival in consumption and excludable Term free rider Definition a person who gets the benefit from a good but does not pay for it Term principle of voluntary exchange Definition a voluntary exchange between two people makes both people better off Term private cost of production Definition the production cost borne by a producer which typically includes the costs of labor, capital and materials Term external cost of production Definition a cost incurred by someone other than the producer Term social cost of procution Definition private cost plus extermal cost Term pollution tax Definition a tax or charge of equal to the external cost per unit of pollution Term marketable pollution permits Definition a system under wich the government picks a target pollution level for a particular area, issues just enough pollution permits to meet the pollution target, and allows firms to buy and sell the permits; also known as a cap and trade system