Econ Final Study Guide

Econ Final Study Guide - Chapter 5 Negative cross-price...

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Chapter 5 Negative cross-price elasticity means the goods are compliments Positive cross-price elasticity means the goods are substitutes Elastic Demand – price elasticity > 1 Inelastic Demand – price elasticity < 1 Unit Elastic Demand – price elasticity = 1 As you move up and to the left on the demand curve, elasticity becomes larger As you move down and to the right on the demand curve, elasticity becomes smaller Chapter 7 Consumer and Producer Surplus operates in a block-like fashion, when quantity rises or falls, the change in surplus derived from the change in quantity sold belongs to the firms that entered/exited the market. Chapter 14 In the long run, the marginal firm will earn zero economic profit Chapter 15 Perfect price discrimination – charging everyone at their highest individual willingness to pay; this maximizes profit for the monopoly and eliminates deadweight loss. When a monopoly increases the amount it sells, it has two effects on TR (P*Q): o Output effect – more output sold, so Q is higher. o Price effect – price falls, so P is lower. For monopolies: when price effect > output effect, MR is negative; when output effect > price effect, MR is positive. Chapter 16 Resale price maintenance – selling a product to retailers and requiring the retailers to charge a specific price for the product. Chapter 17 Monopolistically competitive markets have profit-maximizing points equal to that of monopolies
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Product-variety externality – because consumers get some consumer surplus form the introduction of a new product, entry of new firms conveys a positive externality on consumers. Business-stealing externality – because existing firms lose customers and profits from the entry of a new competitor, entry of a new firm imposes a negative externality on existing firms. In a monopolistically competitive market, exiting firms raise demand and entering firms
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Econ Final Study Guide - Chapter 5 Negative cross-price...

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