Topics for Final Exam
Principles of Microeconomics
Winter 2002

Tuesday March 19
8 am

The final exam will be comprehensive. You will want to review the
Topics for Exam II and Topics for Exam1.

We have covered these chapters since exam two: Ch 16, 17, 9
The following topics have been covered since the second exam

I. Monopoly (con't)

A. Monopoly Problems
1. high prices, low quantity, excess profits
2. inefficiency
    a. market distortions
    b. deadweight loss

B.  Policy
    1. Antitrust
        a. Sherman Act, Clayton Act
        b. FTC, Dept of Justice
        c. consent decree, break-up
    2. regulation
        a. useful for natural monopoly
        b. set price at ATC
        c. regulatory problems
    3. public ownership
    4. other forces
        a. foreign competition
        b. technological change

II. Oligopoly

A. Interdependence
1. game theory
    a. nash equilibrium (non-cooperative)
    b. cooperative equilibrium (joint profit maximization)
2. action and reaction

B. Coordination

1. cartel
2. collusion
3. tacit collusion

C. Mergers

1. horizontal
2. vertical
3. conglomerate
4. antitrust policy and mergers

III. Product differentiation

A. quality differences
    1. product characteristics
    2. seller characteristics
        a. location
        b. service
        c. reputation

B. effects
    1. downward sloping demand curves
    2. increase market power
    3. more consumer choices

C. Advertising
    1. Costs
    2. effects
        a. firm
        b. society

IV. Monopolistic Competition

A. market structure
1. many firms (unconcentrated)
2. differentiated products
3. easy entry and exit

B. product differentiation and price dispersion
1. each firm/brand has its own downward sloping demand curve
2. different products have different prices

C. profit maximization
1. q* where MC=MR
2. find price on demand curve
3. graph looks like monopoly

D. long run
1. profits attract entry
    a. entry reduces demand and increases elasticity for existing firms
    b. price and profits fall, for existing firms
2. losses cause exit
    a. exit increase demand and reduces elasticity for remaining firms
    b. prices and profits rise, for remaining firms
3. long-run equilibrium
    a. profits and losses eliminated
    b. firms break-even
    c. similar to competition, but not at lowest ATC
 

V. Information

A. Imperfect information causes market problems
1. search costs
2. complicating factors

B. Asymmetric Information
1. one party has access to information unavailable to other party
    a. seller (example: used cars)
    b. buyer (example: health insurance)
2. adverse selection

C. Signaling
1. can be used to provide information
    a. college education as signal to employers
    b. guarantees as signal of quality
    c. other methods
2. costly
3. can reduce problems of asymmetric information
 


VI. International Economics

A. Trade

1. imports and exports
2. benefits of international trade

B. Protectionism

1. tariffs
2. quotas
3. high costs
    a. higher prices to consumer
    b. expensive per job "saved"
    c. inefficient use of resources
    d. protect some jobs at the expense of others
        i) higher costs to producers
        ii) retaliation

C. Free trade Agreements

1. Multilateral
    a. GATT
    b. World Trade Organization

2. regional
    a. NAFTA
    b. European Union

D. Globalization and Multinationals

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