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Microecon Exam 5
Finck Microecon class Auburn University
29
Economics
Undergraduate 1
11/29/2011

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Term
game theory
Definition
-the study of how people behave in strategic situations
-explains the strategies that people choose
Term
Characteristics of oligopoly
Definition
-small group of sellers
- actions of any one seller in the market can have a large impact on the profits of all the other sellers
Term
collusion
Definition
an agreement among firms in a market about quantities to produce or prices to change
Term
cartel
Definition
a group of firms acting in unison
Term
Monopsony
Definition
CHARACTERISTICS:
-a single buyer (employer) in an industry
-monopsonist faces the entire, upward-sloping market supply curve
-Monopsonists are “price” makers, but as Labor rises, Wage rises as well
Term
Always the same on first row of the monopsony labor chart
Definition
-Q and MP(L)
-W, TVC, and MFC
Term
Union goals
Definition
GOALS:
-Maximize wages
-Maximize employment
Term
Union actions
Definition
-Increase in the D for output
Action: Advertise union-made
-Increase in members’ productivity
Action: Apprenticeship programs
-Increase in the price of substitute labor
Action: Lobby for minimum wage increases
- Decrease in the Ed for output
Action: Lobby for import restrictions
-Decrease the number of substitute inputs
Action: Lobby for more immigration laws
Term
Factors that increase D for labor
Definition
-Increase in the D for output
-Increase in members’ productivity
-Increase in the price of substitute labor
Term
Factors that decrease Εd of D for labor
Definition
-Decrease in the Ed for output
-Decrease the number of substitute inputs
Term
How to find L* and W* on a monopsony graph
Definition
Find L* where MRPL = MFC
Go down from that point to the supply line to find W*
Term
DL = MRPL
-for both PC and monopsony
Definition
Term
How to find L* and W* on a PC graph
Definition
Find where the S and D line cross
Term
strike
Definition
The withholding of labor services by a labor union
Term
Exploitation of labor
Definition
monopsony exploits labor force by paying them the lowest minimum wage possible and making lots of profit from the money made
Term
labor union
Definition
A group of workers organized to advance the interests of the group
Term
Cartel firm: incentive to cheat
Definition
-a single firm can make more profit than the other due to the firm holding a larger percentage of the market
Term
Mutual interdependence
Definition
a condition in which an action by one firm may cause a reaction from other firms
Term
Prisoner’s dilemma
Definition
-provides insight into why cooperation is difficult
-Because each pursues his or her own interests, the two prisoners together
reach an outcome that is worse for each of them.
Term
derived demand
Definition
-a firm’s demand for a factor of production is derived from its decision to supply a good in another market
Term
market failure
Definition
-the inability of some unregulated markets to allocate resources
efficiently.
-When markets fail, public policy can potentially remedy the problem and increase economic efficiency
Term
game theory
Definition
the study of strategy and how people make decisions when interacting in conflict with one another
Term
Effects of hiring a worker
Definition
-raise wages to attract workers
-raise wages for current workers
Term
excise taxes
Definition
-taxes on specific goods like gasoline,
cigarettes, and alcoholic beverages. -also includes various small items, such as estate taxes and customs duties
Term
free rider program
Definition
-a person who receives the benefit of a good but does not pay for it
-Because public goods are not
excludable, the free-rider problem prevents the private market from supplying them.
Term
Non-excludable
Definition
you can not prevent people from using the good
Term
non-rival in consumption
Definition
one person’s use of a public good does not reduce another person’s ability to use it
Term
Public goods
Definition
goods that are neither excludable nor rival in consumption
ex. tornado siren
Term
MEB=MSB units - D units
Definition
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