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Economics 2005 Exam 3 Review

by: Tim Reynolds

Economics 2005 Exam 3 Review ECON 2005

Tim Reynolds
Virginia Tech

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About this Document

All topics and concepts that will be covered on Exam 3.
Principles of Economics
Steve Trost
Study Guide
firm, oligopoly, Economics, Taxes, gametheory, externality, antitrust, imperfectinformation, public-goods
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This 3 page Study Guide was uploaded by Tim Reynolds on Monday April 25, 2016. The Study Guide belongs to ECON 2005 at Virginia Polytechnic Institute and State University taught by Steve Trost in Spring 2016. Since its upload, it has received 22 views. For similar materials see Principles of Economics in Economcs at Virginia Polytechnic Institute and State University.

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Date Created: 04/25/16
WEDNESDAY’S EXAM Chapters 10, 15, 14, 16, 17, 18, Taxes Logistics:  36 Multiple choice (Chapter 10 has the most problems)  48 Minutes EXAM TOPICS/CONCEPT REVIEW Monopolistic Competition - Like PC, with “differentiated products.” - D slopes down due to prod. Diff. - In long run, avg. profits = 0 (free entry) Oligopoly - Few big firms with market power - Interaction, interdependence between firms - Not efficient since P>MC, plus strategies may be wasteful! - Models o Cartel/collusion model o Price leadership model o Contestable markets Game Theory - Players, strategies, payoffs - Be able to find “equilibrium” - Dominant Strategy - Nash equilibrium - Maximum strategy - Tit-for-tat strategy Antitrust - Regulation of natural monopolies o If P=MC, firm loses money o If P=AC, firm earns 0 economic profit, but not socially efficient o FTC and DOJ monitor competitiveness in US industries o Use HHI to determine whether a merger should be challenged  If under 1500, never challenged, if over 2500, almost always challenged Random Firm Stuff - Transaction costs - Vertical integration o Control stages of production o “Bounded rationality” - Outsourcing vs. Insourcing - Economies of Scale - Economies of Scope Imperfect Information - Adverse Selection - Moral Hazard - Principal-Agent problem - Labor Markets – signaling and screening - Winner’s Curse - SEARCH Model Public Goods - Non-rival and nonexclusive - Markets don’t provide these goods in an efficient manner - Public goods need to be provided to the government - Know other types of goods as well – private, open-access, “natural monopoly” - Public choice- median voter, rational ignorance, rent seeking, etc. - Types of legislation- public good, special interest, populist, competing interest Externalities - Private cost vs. Social cost - Negative externality means MSC>MPC - Ways to correct for externalities: o Regulation o Taxes (=MDC) o Coase Theorem (set property rights and negotiate) o Auction or allocate tradable pollution permits - Positive externalities: MSB>MPB o These will be under-consumed or under-produced Income Distribution - Measuring income inequality - Sources of income - Marginal vs. average tax rate


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