Market Logic (Demand, Supply & Equilibrium)
If the price of coffee rises, what happens to the demand for tea (a substitute)?
It Increases
Why does satisfaction from each additional unit consumed decline?
Law of Diminishing Marginal Utility
Which type of firm has no control over market price?
Perfectly Competitive Firm
What is a cost or benefit that affects a third party who did not choose to incur it?
Externality
When one party knows more than the other, what problem exists?
Information asymmetry
An increase in income raises demand for restaurant meals. What happens to the demand curve?
Rightward shift of demand
At consumer equilibrium, which ratio is equal across goods?
Marginal utility per unit of price (MU/P)
What is the term for a market dominated by a small number of large firms?
Oligopoly
A strategy that is best regardless of others’ actions is called?
Dominant Strategy
What do we call the additional revenue generated by hiring one more unit of labor?
Marginal Revenue Product
What do we call a good for which demand decreases as consumer income rises?
Inferior Good
What curve represents all combinations of two goods that provide a consumer with the same level of satisfaction?
Indifference Curve
What pricing strategy involves charging each customer the maximum price they are willing to pay?
First-Degree Price Discrimination
The stable outcome where no player wants to deviate alone is?
Nash Equilibrium
The idea that decision-making is limited by information, cognitive ability, and time is called
Bounded Rationality
Price is set above equilibrium and sellers cannot sell all output. What exists in the market?
Excess supply
Profit maximization occurs where which two curves intersect?
Marginal Revenue and Marginal Cost (MR = MC)
Charging students lower ticket prices is what type of pricing?
3rd Degree Price Discrimination
What is the term for the tendency of people to take more risks when they are insured?
Moral Hazard
A conflict of interest where one person makes decisions on behalf of another, but has different incentives
Principal-Agent Problem
What is the term for the loss in total surplus that occurs when a tax or a price floor distorts a market outcome?
Deadweight Loss
An inferior good where an increase in price causes an increase in demand due to a strong income effect is called?
Giffen Good
What is used to measure degree of Monopoly Power
Lerner Index
What type of market failure occurs specifically before a transaction, where "bad" products drive "good" products out of the market?
Adverse Selection
A small change in environment/choice architecture that influences behavior without forbidding options
Nudge