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Econ2106test3

Vocab Ch. 15 & 8

Question	Answer
Where relatively few firms control all or most of production and sale of a product	Oligopoly
When firm shapes its policy with an eye to the policies of competing firms	Mutual interdependence
Economies of large-scale production make operation on small scale extremely unprofitable, discourages new firms from entering market
when firms act together to restrict competition	collude
collection of firms that agree on sales, pricing, and other decisions	cartel
determination of price based on marginal revenue derived from market demand schedule and marginal cost schedule of firms in industry	joint profit maximization
indicates price rigidity in oligopoly when competitors show a greater tendency to follow price reductions than price increases	kinked demand curve
when a dominant firm that produces a large portion of industry's output sets a price that maximizes its profits, and other firms follow	price leadership
Mutual interdependence of oligopolists tempts them to collude in order to reduce uncertainty and increase potential for economic profits
Most strong collusive oligopolies are rather short lived because of strick antitrust laws, and cheating within collusive firms
indicates price rigidity in oligopoly when competitors show a greater tendency to follow price reductions than price increases	kinked demand curve
large firm in an oligopoly that unilaterally makes changes in its product prices that competitors tend to follow	price leader
a competitor in an oligopoly that goes along with the pricing decision of the price leader	price follower
setting a price deliberately low in order to drive out competitors	predatory pricing
firms attempt to maximize profits by acting in ways that minimize damage from competitors	game theory
collusion by two firms in order to improve their profit maximizations	cooperative game
each firm sets its own price without consulting other firms	non cooperative game
strategy that will be optimal regardless of opponents' actions	dominant strategy
basic problem facing non colluding oligopolists in maximizing their own profit	prisoners' dilemma
summary of possible outcomes of various strategies	payoff matrix
strategy used in repeated games where one player follows the other player's move in the previous round; leads to greater cooperation	tit-for-tat strategy
when number of other people purchasing the good influences quantity demanded	network externality
increase in a consumer's quantity demanded for a good because a greater number of other consumers are purchasing the good	positive network externality
increase in a consumer's demand for a good because fewer consumers are purchasing the same good	negative network externality
a positive network externality in which a consumer's demand for a product increases because other consumers own it	bandwagon effect
costs involved in changing from one product to another brand or in changing suppliers	switching costs
a benefit or cost from consumption or production that spills over onto those who are not consuming or producing the good	externality
occurs when benefits spill over to an outside party who is not involved in producing or consuming the good	positive externality
occurs when costs spill over to an outside party who is not involved in producing or consuming the good	negative externality
a good that is nonrivalrous in consumption and nonexcludable	public good
good with rivalrous consumption and excludability	private good
deriving benefits from something not paid for	free rider
a rival good that is nonexcludable	common resource
occurs when the available information is initially distributed in favor of one party relative to another in an exchange	asymmetric information
situation where an informed party benefits in an exchange by taking advantage of knowing more than the other party	adverse selection
taking additional risks because you are insured	moral hazard
situation that arises in certain auctions where the winner is worse off than the loser because of an overly optimistic value placed on the good	winner's curse

Created by: crleveille

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