Chapter 17 vocabulary

Chapter 17 vocabulary - o cartel A group of firms acting in...

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o cartel A group of firms acting in unison. o collusion An agreement among firms in a market about quantities to produce or prices to charge. o dominant strategy A strategy that is best for a player in a game regardless of the strategies chosen by the other players. o game theory The study of how people behave in strategic situations. o Nash equilibrium A situation in which economic factors interacting with one another each choose their best strategy given the strategies that all the other factors have chosen. o oligopoly A market structure in which only a few sellers offer similar or identical products. o prisoners' dilemma A particular "game" between two captured prisoners that illustrates why cooperation is difficult to maintain even when it is mutually beneficial. Chapter Recap: Summary o Oligopolists maximize their total profits by forming a cartel and acting like a monopolist. Yet, if oligopolists make decisions about production levels individually, the result is a greater quantity and a lower price than under the monopoly outcome. The larger the number of firms in the oligopoly, the closer the quantity and price will be to the levels that would prevail under competition. o The prisoners' dilemma shows that self-interest can prevent people from maintaining cooperation, even when cooperation is in their mutual interest. The logic of the prisoners' dilemma applies in many situations, including arms races, common-resource problems, and oligopolies. o Policymakers use the antitrust laws to prevent oligopolies from engaging in behavior that reduces competition. The application of these laws can be controversial, because some behavior that can appear to reduce competition may in fact have legitimate business purposes. Chapter Recap: Questions for Review 1. If a group of sellers could form a cartel, what quantity and price would they try to set? 2. Compare the quantity and price of an oligopoly to those of a monopoly. 3. Compare the quantity and price of an oligopoly to those of a competitive market.
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4. How does the number of firms in an oligopoly affect the outcome in its market? 5. What is the prisoners' dilemma, and what does it have to do with oligopoly? 6. Give two examples other than oligopoly to show how the prisoners' dilemma helps to explain behavior. 7.
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This note was uploaded on 07/14/2011 for the course ECO 1001 taught by Professor Barcia during the Spring '08 term at CUNY Baruch.

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Chapter 17 vocabulary - o cartel A group of firms acting in...

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