Microeconomics

Exam 3 Review

ExternalityBenefits or Coststo

someone else- Third Party-Positive or

Negative

Government Intervention

Subsidize Positives

Tax and Regulate Negatives

Asymmetric InformationNot Equal

Moral HazardAct different because

someone else will pay the costs

Price Discrimination

Charging different people a different price for the same

product

MonopolyIncrease profits by reducing quantity

and increasing price

Demand CurvesPerfect Competition -

FlatMonopoly - Downward

Oligopoly - Unknown

Types of MonopolyOne Price

Two Price - CouponsMulti-Price -

discrimination

Prisoner’s DilemmaBest Choice

is the second choiceGreedy will end up

worst off

Tragedy of the Commons

When everybody shares, the resource

is over-used

Maximize ProfitsMR = MC

Perfect CompetitionPrice = MRMonopoly

Price > MR

Q P TRP x Q

MR∆TR MC TC Profit

TR-TC1 50 50 50 28 28 222 45 90 40 28 56 343 40 120 30 28 84 364 35 140 20 28 112 285 30 150 10 28 140 106 25 150 0 28 168 -187 20 140 -10 28 196 -56