Microeconomics Study Guide

Chapter 1: Ten Principles of Economics

1. 2 types of market failure Externality Market Power: When a person or small group has the ability to influence

market price.

Chapter 2: Thinking Like An Economist

1. Circular Flow Diagram: A visual model of the economy that shows how dollars flow through markets among households and firms.

2. Production Possibilities Frontier: A graph that shows the combination of output that the economy can possibly produce given the available factors of production and the available production technology.

3. Statements: Positive: Makes a claim about how the world IS. Normative: Makes a claim about how the world SHOULD BE.

4. Why is the Production Possibilities Frontier bowed out or flat? A bowed out curve means there is specialization in the market and it cannot

adjust from producing one good to another in a short time. A flat curve means that they can switch between producing either good whenever.

Chapter 3: Interdependence and the Gains from Trade

1. Absolute Advantage: The ability to produce a good using fewer inputs than other producers.

2. Comparative Advantage: The ability to produce a good at a lower opportunity cost than another producer.

For both parties to gain from trade, the price at which they trade must lie in between their two opportunity costs.

Chapter 4: The Market Forces of Supply and Demand

1. Definition of a Competitive Market Producers offered are exactly the same Buyers and sellers have no influence over the price. (They are Price Takers.)

2. Law of Demand: The quantity demanded falls when price rises.

3. Normal Good: A good where an increase in income leads to an increase in demand.

4. Inferior Good: A good where an increase in income leads to a decrease in demand.

5. Surplus: A situation in which quantity supplied is greater than quantity demanded.

6. Equilibrium: A situation in which the market price has reached the level at which quantity supplied equals quantity demanded.

Chapter 5: Elasticity and Its Application

1. Elasticity: A measure of the responsiveness of the quantity demanded or quantity supplied to a change in one of its determinants. Elastic: If quantity demanded responds substantially to a change in price. Inelastic: If quantity demanded responds only slightly to a change in price.

2. How to Remember all the Elasticity Equations: PICS Price Elasticity of Demand: % Change Quantity Demanded / % Change Price Midpoint Method: (Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2] Income Elasticity of Demand: % Change Quantity Demanded / % Change

Income Cross Price Elasticity of Demand: % Change Quantity Demanded Good 1 /

% Change Quantity Demanded Good 2 Price Elasticity of Supply: % Change Quantity Supplied / % Change Price

3. Graph Elasticity

4. Elasticity: 1 = Unit Elastic > 1 = Inelastic < 1 = Elastic

5. Total Revenue: Price x Quantity Graph:

Chapter 6: Supply, Demand, and Government Policies

1. Price Ceiling: Legal maximum price for a good.

2. Price Floor: Legal minimum price for a good.

Binding: If price floor or ceiling has affect on market price. Binding Price Floor: Causes Surplus Binding Price Ceiling: Causes Shortages

3. Lesions About Taxes Taxes discourage market activity. Quantity sold is smaller at its new

equilibrium after taxes. Buyers and sellers feel tax. Buyers pay more, sellers receive less. Tax levied on buyers and sellers are equivalent.

4. When: Supply is more elastic than demand; the incidence of the tax falls more

heavily on consumers. Demand is more elastic than supply; the incidence of the tax falls more

heavily on sellers.

Tax burden falls on the side of the market that is less elastic.

Chapter 7: Consumers, Producers, and the Efficiency of Markets

1. Welfare Economics: The study of how the allocation of resources affects economic wellbeing.

2. Willingness to Pay: The maximum amount that a buyer will pay for a good.

3. Consumer Surplus = Willingness to Pay – Amount Paid

4. Producer Surplus = Amount Seller is Paid – Sellers Costs

5. Consumer and Producer Surplus Graphs:

Chapter 8: Cost of Taxation

1. Tax: Cost to Buyers and Sellers > Revenue Raised by Government

2. Effect of Tax Graph:

3. Deadweight Loss: The fall in total surplus that results from a market distortion, such as a tax.

4. Why do Taxes Cause Deadweight Loss? Because they prevent buyers and sellers from realizing some of the gains

from trade.

The greater the elasticity of supply and demand, the greater the deadweight loss of a tax is.

5. Laffer Curve: As a tax gets bigger, tax revenue gets larger then smaller. Graph:

Chapter 9: International Trade

1. World Price: The price of a good on the world market.

2. Graph of Exports and Imports:

3. When a Country Allows Trade and Becomes an: Exporter, domestic producers are better off, and domestic consumers are

worse off. Importers, domestic producers are worse off, and domestic consumers are

better off.

Trade Raises Economic Wellbeing of Nation Because:Gains from Winners > Losses from Losers

4. Tariff: Tax on imported goods. Tariffs reduce quantity of imports and moves domestic market closer to

it’s equilibrium without trade.

5. Graph of Tariff:

Gains From Local Producers ARE NOT > Than Losses From Consumers

6. Other Benefits of International Trade Increased Diversity Low Cost Through Economics of Scale Increased Competition Enhanced Flow of Ideas

Chapter 10: Externalities

1. Externality: The uncompensated impact of one person’s actions on the wellbeing of a by standard.

Negative Externality: Adversely affected Positive Externality: Beneficial

2. Negative Externalities Shift Supply Back

3. Positive Externalities Shift Demand Forward Graph:

4. Corrective Tax: A tax designed to induce private decision makers to take account of the social costs that arise from a negative externality.

5. Coase Theorem: The proposition that if private parties can bargain at no cost over the allocation of resources, they can solve the problem of externalities on their own.

6. Transaction Costs: The costs that parties incur in the process of agreeing to and fallowing through on a bargain.

Chapter 11: Public Goods and Common Resources

1. Excludible: Can people be prevented form using the good.

2. Rival in Consumption: Does 1 person using the good reduce another person’s ability to use it.

3. Private Good: Both excludible and rival in consumption.

4. Public Good: Not excludible or rival in consumption

5. Common Resource: Not excludible but rival in consumption

6. Club Good: Excludible but not rival in consumption

7. Free Rider: Someone who receives a benefit of a good without paying for it. Because public goods are not excludible, the free rider problem prevents

markets from supplying them.

8. Tragedy of the Commons: When one person uses a common resource it makes the availability and quality of that resource less for others. Because this negative externality is not accounted for, common resources get used up.

Chapter 13: The Cost of Production

1. Equations: Total Revenue = Price x Quantity Average Total Revenue = Total Revenue / Quantity Total Cost = Cost of Inputs

= Implicit Cost + Explicit Cost Profit = Total Revenue – Total Cost Economic Profit = Total Revenue – (Implicit + Explicit Costs) Accounting Profit = Total Revenue – Explicit Costs Average Fixed Cost = Fixed Cost / Quantity of Output Average Variable Cost = Variable Cost / Quantity of Output Marginal Cost = Change in Total Cost / Change in Quantity

2. Implicit Cost: Cost that doesn’t require money. (Opportunity Costs) Explicit Costs: Costs that require money.

3. Production Function: Relationship between quantity of inputs used to make a good and the quantity of outputs of that good.

4. Marginal Product: The increase in output from one more unit of input.

5. Diminishing Marginal Product: The property whereby the marginal product of an input declines as the quantity of that input increases.

6. Total Cost Curve: The relationship between the quantity produced and the total cost. Because of diminishing marginal product, as quantity produced increases marginal cost increases.

7. Fixed Costs: Costs that do not vary with the quantity produced.

8. Variable Costs: Costs that change as the amount of output changes.

9. Efficient Scale: The point on the Average Total Cost Curve that minimizes average total cost. Occurs at the bottom of the Average Total Cost Curve U.

10. Relationship Between Average Total Cost and Marginal Cost: Whenever MC < ATC, ATC is falling. Whenever MC > ATC, ATC is rising. Because MC crosses ATC at Efficient Scale. (Bottom of ATC U)

11. The 3 Properties of Cost Curves Marginal Cost Eventually Rises With Quantity of Output The Average Total Cost Curve is U-Shaped

The Marginal Cost Curve Crosses the Average Total Cost Curve at its Minimum (Efficient Scale)

12. Economics of Scale: The property whereby long-run average total cost falls as the quantity of output increases.

13. Diseconomies of Scale: The property whereby long-run average total cost rises as the quantity of output increases.

14. Constant Return to Scale: The property whereby long-run average total cost stays the same as the quantity of outputs changes.

Chapter 14: Firms in the Competitive Market

1. Market Power: When a firm can influence the market price of a good.

2. The 3 Characteristics of a Competitive Market Many Buyers and Sellers in the Market The Good Offered by Various Sellers is Largely the Same Firms Can Freely Enter or Exit The Market

3. For All Firms : Average Revenue = The Price of the Good

4. Marginal Revenue: The change in total revenue from an additional unit sold.

5. Price = Marginal Revenue = Average Revenue

6. Change in Profit = Marginal Revenue – Marginal Cost

7. If

Marginal Revenue > Marginal Cost, Increase Production Marginal Revenue < Marginal Cost, Decrease Production

Firms Maximize Profit When: Marginal Revenue = Marginal Cost

8. The 3 Rules for Profit Maximization: MR > MC, Increase Production MR < MC, Decrease Production MR= MC is Profit Maximizing Equilibrium

9. The Marginal Cost Curve is also a Firms Supply Curve

10. Shutdown vs. Exit Shutdown: Short term decision to stop production. Pays Fixed Cost, Does

Not Pay Variable Cost. Shutdown If P < AVC in Short Run

Exit: Long term decision to shut down. Does not pay any fixed or variable cost. Exit if P < ATC in Long Run. Firms Enter is P > ATC

11. Measuring Profit on a Graph:

Over short periods of time in a market, it is difficult for a firm to enter or exit, so we assume the number of firms is fixed in the short run.

Short Run Supply Curve Change in Price

12. Long Run Response: Price = ATC, Economic Profit = 0 Firms will enter or exit the market until P = ATC Therefor, in the long run equilibrium of a competitive market with free

entry and exit, firms will be operating at there efficient scale

13. Graph: Firms Zero Profit Condition

14. Why Do Firms Stay In Business If They Make 0 Profit? Because we are measuring economic profit which includes opportunity

costs that the firm owners are compensated for in the form of profits.

15. Graph: Demand Shifts Short and Long Run

Market Firm

16. Reasons Why Long Run Supply Might Slope Upward Resources used in production might be limited in quantity. Firms may have different costs.

17. Long Run Supply Curve Is More Elastic Then Short Run Supply Curve

Chapter 15: Monopoly

1. Price Maker: When a firm sets the market price of the good it’s selling.

2. Why Don’t Monopolies Charge Extremely High Prices? Because High Prices Reduce Demand

3. Monopoly: A firm that is the sole seller of a product without close substitute. Fundamental Cause: Barriers to Entry Because Monopolies are unchecked by competition, the outcome in a

market with a monopoly is often not in the best interest of society.

4. The 3 Sources to Barriers to Entry Monopoly Resource : Resource used for production is owned by a single

firm. Government Regulation : the government gives a single firm the exclusive

rights to produce a good. The Production Process : A single firm can produce output at a lower cost

than can a large number of producers.

5. Monopoly vs. Competitive Firms Competitive firm, demand is horizontal Because monopoly is the only supplier, it has downward sloping demand

like a market.

6. For Monopolies, Average Revenue = Demand

7. Monopoly: Marginal Revenue < Price

8. The Output Effect: More output is sold, so quantity is higher, which tends to increases total revenue.

9. The Price Effect: The price falls, so price is lower, which tends to decrease total revenue.

10. When a monopoly increases production by 1 unit, it must reduce the price it charges for every unit it sells, and this cut in price reduces revenue on the unit it was already selling.

11. For Monopolies Too: Price = Average Total Revenue

12. When MC < MR, Monopolies Increase Production When MC > MR, Monopolies Decrease Production Profit Maximizing Quantity: Marginal Cost = Marginal Revenue

13. For: Competitive Firms: Price = Marginal Revenue = Marginal Cost Monopolies: P > Marginal Revenue = Marginal Cost

14. Profit Maximizing Equation : P > Marginal Revenue = Marginal Cost

15. Monopoly Profit Graph:

16. Total Surplus = Value to Buyers – Cost to Sellers

17. Socially Efficient Quantity: Where demand curve (Average Revenue and Value to Buyers) and Marginal Cost Curve Intersect

Graph:

18. Monopolist Produces Less Then The Socially Efficient Quantity of Outputs The Inefficiency of Monopoly Graph

19. Monopolies are not a social cost because even though consumers are worse off by the amount of profit the monopoly receives, the monopoly is better off. So the consumer is giving some of his surplus to the producer, but that does not reduce the amount of total surplus.

20. Price Discrimination: The business practice of selling the same good at different prices to different consumers.

21. The 3 Lesions About Price Discrimination: Price discrimination is a rational strategy for a profit-seeking monopolist. Price discrimination requires a way of separating consumers by there

willingness to pay. Price discrimination can raise public welfare because it supplies everyone

with the product at there willingness to pay. So everyone who has a willingness to pay > Marginal cost gets the product and the outcome is efficient. Also eliminates deadweight loss from monopoly pricing.

22. Perfect Price Discrimination: A situation when the monopolist knows everyone’s willingness to pay and can charge each customer a different price. Charges exact willingness to pay gets entire surplus in every transaction.

23. Graph of Welfare With Perfect Price Discrimination

24. The 4 Ways Policy Makers Respond to Monopolies1) By trying to make a monopoly more competitive.

Antitrust Laws2) Regulation of Monopolies Behavior 3) Public Ownership: ex. Postal service4) Nothing

Competitive Monopoly

Similarities

Goals of Firm Maximize Profits Maximize ProfitsRules For Maximizing Profit MR = MC MR = MCCan Earn Profit in Short Run Yes Yes

Differences

Number of Firms Many 1Marginal Revenue = Price = Average Revenue < PricePrice = Marginal Cost Price > Marginal CostProducing Welfare Max Yes NoEntry in Long Run Yes NoCan Earn Economic Profit Long Run No YesPrice Discrimination No Yes

Chapter 16: Monopolistic Competition

1. Oligopoly: A market structure in which only a few sellers offer similar or identical products.

2. Imperfect Competition: When an industry falls in between perfect competition and monopoly.

3. Concentration Ratio: Used by economists to measure markets domination by a small number of firms.

Percent of total output in market supplied by the four biggest firms. Industries with high concentration ratios are best described as

oligopolies.

4. Monopolistic Competition: A market structure where many firms sell products that is similar but not identical.

Each firm has monopoly in product it makes, but there are many firms competing for same group of customers.

Product Differences: Firms produce products that are at least slightly different from those of other firms. Thus, rather than being price takers, each firm faces a downward sloping demand.

Free Entry or Exit: Markets adjust until economic profit = 0.

5. Monopolistically Competitive Firm in Short Run Is: Like a Monopoly Sells its own product, it sets market price, so downward facing demand

slope.

6. In monopolistic competition, when firms are making economic profit, new firms enter, which reduces demand, because of new products, shifting demand curve to the left.

When making negative profit, firms exit, less choice of products, increases demand for all other firms, raising profits.

7. The 2 Characteristics of Long Term Equilibrium in a Monopolistically Competitive Market

As in monopolies, Price > Marginal Cost because Marginal Cost = Marginal Revenue and Marginal Revenue < Price.

As in competitive markets, Price = Average Total Cost because free entry and exit drive profit to 0.

8. Long Run Monopolistically Competitive Market Graph

9. Monopolistic Competition vs. Perfect Competition Excess Capacity: Firm could increase quantity produced and lower

average total cost of production. Mark Up Over Marginal Cost: Price > Marginal Cost, operating on

downward slope of average total cost, so more profit per quantity sold.

10. Welfare Same difference between Marginal Cost and Price, so there is deadweight

loss like with monopolies.

11. The 2 Externalities When a Firm Enters The Product Variety Externality: Because consumers get some consumer

surplus from introduction of new product, entry conveys positive externality on consumers.

The Business Sealing Externality: Existing firms loose customers and profits from new firm entry, which gives them a negative externality.

12. Advertising: Fosters competition and drives prices down. Highly Differentiated Consumer Goods: 10-20% Revenue Industrial: Very Little Economy as a whole: 2%

Perfect Competition Monopolistic Comp. Monopoly

All 3 Share

Goal Of Firm Profit Max. Profit Max. Profit Max.Rule For Max. MC = MR MC = MR MC=MRCan Earn ShortTerm Profits Yes Yes Yes

Features Monopolistic Competition Share With Monopoly

Price Takers Yes No NoPrice Price = MC Price > MC Price > MCWelfare Max. Yes No No

Monopolistic Competition and Perfect Competition

Number of Firms Many Many 1Entry in Long Run Yes Yes NoEarn Economic Profit No No Yes In Long Run

Chapter 17: Oligopoly

1. Oligopoly: Market structure where few sellers offer similar or identical products. Any addition of producers has large impact on sellers already in market.

(On there profits)

2. Game Theory: The study of how people behave in strategic situations.

3. Duopoly: Oligopoly with only two sellers.

4. Collusion: An agreement among firms in a market about price and quantity produced.

5. Cartel: A group of firms acting in unison. Once a cartel is formed, market becomes served by a monopoly. Profit

maximized, socially inefficient.

6. Equilibrium for an Oligopoly: Often not possible to form collusions or cartels because of greed, antitrust laws.

Often earn total profit less than monopoly profit.

7. Nash Equilibrium: A situation in which economic actors interact with each other and chose their best strategy given the strategies that all the other actors have chosen.

8. When oligopolies choose to maximize profits, they produce more output than a monopoly and less output than a competitive market. The oligopoly price is less than the monopoly price but greater than the competitive price.

9. When deciding if firms should increase production there are 2 factors to consider: The Output Effect: Because P > MC, Selling 1 More Unit of Output

Increases Profits The Price Effect: Raising Production Will Increase Total Amount Sold,

Which Lowers the Price and Lower Profits on all Other Units Sold. If output effect > price effect, Increase Production If output effect < price effect, Decrease Production Price effect gets smaller as more firms enter the market. That means

production decision of one firm wont affect market.

10. As number of sellers in an oligopoly increases, market turns to a competitive market. Prices approach marginal cost, and the quantity produced approaches the socially efficient level.

11. Dominant Strategy: A strategy that is best for a player in a game regardless of the strategies chosen by the other players.

12. Resale Price Maintenance: Supplier giving products to sellers for a price, then telling all of them they cant sell it for less than a certain price.

13. Predatory Pricing: When a firm with market power tries lowering prices to drive out competitors so it can regain full monopoly power and set higher prices.

14. Tying: when a seller packages 2 or more products together and sells them both as one.

Chapter 19: Earnings and Discrimination

1. Compensating Differential: A difference in wages that arises to offset the nonmonetary characteristics of different jobs.

2. Human Capital: The accumulation of investments in people, such as education and on the job training.

3. Reasons for Above Equilibrium Wages Minimum Wage Laws Market Power of Unions Theory of Efficiency Wages: Above equilibrium wages paid by firms to

increase worker productivity. 4. Effects of Theory of Efficiency

Surplus Labor Unemployment

5. Discrimination: The offering of different opportunities to similar individuals who differ only by race, ethnic group, sex, age, or other personal characteristics.

6. Competitive markets contain a natural remedy form employer discrimination. The entry into the market of firms that care only about profit tends to eliminate discriminatory wage differentials. These wage differentials persist in competitive markets only when consumers are willing to pay to maintain the discriminatory practice or when the government mandates it.

7. Value of Marginal Product Value of Marginal Product = Price A firm will hire workers until the value of marginal product of the last

worker = the equilibrium wage. The same goes for capitol.

8. Marginal Product of Income Distribution Factors of production will be paid according to the value of the marginal

product of the last factor “hired”. As the marginal product of the different factors changes, so will the

distribution of income.

9. What Causes Changes in Wages/Rent/Interest Change in labor demand Output price of final good will change value of marginal product. Technology change will change the marginal product.

10. What Causes Differences in Wages Across Different Jobs and Groups? Compensating Differentials Human Capitol Skill/Ability

11. Human Capital Theory Education: Makes workers more productive Policy to increase education attainment because of high productivity and

wages.

12. Signaling Theory Education: Natural Ability Policy to increase education attainment No increase in productivity or wage

13. Superstar: Great public appeal and astronomical incomes. Arise when: Every consumer in the market wants the product supplied by the best

producer. Good is produced using technology that makes it possible for the best

producer to supply everyone in the market. Superstars may cause others in the market to decrease effort/productivity.

Chapter 20: Income Inequality and Poverty

1. How we Can Measure Poverty Quintiles: All families split into 5 equal sized groups by income. Gini Coefficient: Measures cross-country differences in inequality. -0 is

perfect equality and -1 is one person has everything and everyone else has nothing.

Poverty Line: An absolute level of income set by the federal government for each family size, below which a family is deemed to be in poverty.

2. Poverty Rate: The percentage of the population whose family income falls below an absolute level. (The Poverty Line)

3. Permanent Income: A persons normal income

4. In-Kind Transfers: Transfers to the poor in the form of goods and services rather than cash.

5. Life Cycle: Regular pattern of income variation over a persons life.

6. Economic Mobility: Movement of people among income classes.

7. The Gatsby Curve: A connection between concentration of wealth in one generation and the ability of the next generation to move upward in economic distribution. X-Axis: Intergenerational Elasticity of Income Y-Axis: Gini Coefficient

8. Social Justice: Political philosophy of redistributing income. Justice is an attribute of actions by agents. Distribution of resources in a free market isn’t intended and therefor can’t

be just or unjust. (The market itself is not an agent) Markets tend to benefit everybody in the long run. (Interfering with

markets causes inefficiencies) Political and economic institutions are intended. Just because the outcome

is unintended doesn’t mean people aren’t responsible.

9. Utility: Measure of happiness or satisfaction

10. What’s Relevant with Social Justice? Income, Wealth, Opportunities, Jobs, Welfare, Utility Who Are Recipients of Social Justice? Individuals, Groups of People,

Reference Classes Basis of Distribution? Equality, Maximization, Individual Characteristics,

Individual Freedom

11. Strict Equalitarianism (Equality): Every person should have the same level of material goods and services.

12. Utilitarianism: A political philosophy where the government should choose policies to maximize the total utility of everyone in society.

Based on diminishing marginal utility, 1 more dollar of income gives more utility to a poor person than a rich person.

Government redistributes income from rich to poor to increase total utility. Balances gains from greater utility with losses from distorted incomes. Goal: Maximize Total Utility Problem: Not moral to make one person suffer so that another person is

better off.

13. Liberalism: A political philosophy according to which the government should choose policies deemed just, as evaluated by an impartial observer behind a “vial of ignorance”

Aims to maximize minimum utility

14. Maximum Criterion: The claim that the government should aim to maximize the wellbeing of the worst off person in society.

15. Libertarianism: The political philosophy the government should punish crime and enforce agreements but not redistribute income.

16. Nozicks Entitlement Theory: Property rights, people own and can do what they want with what’s theirs. 3 Ways People Own Things

Initial Acquisition Legitimate Transfer Rectification

17. Policies to Reduce the Number of People Living in Poverty Minimum Wage Negative Income Tax In-Kind Transfer

18. Negative Income Tax: Collects revenue from high-income households and gives subsidies to low-income households.

Game Theory

1. Game Theory: The study of how people behave in strategic situations. Must consider the choices of other players.

2. Nash Equilibrium: Occurs when a player chooses the outcome that maximizes their own benefit given the strategies that the other players play. Given other players strategies, no player has any incentive to deviate. If any player could improve their outcome by choosing a different strategy, it is not Nash equilibrium. Games can have multiple Nash equilibrium, one Nash equilibrium, or no Nash equilibrium.

3. Prisoners Dilemma: Game used to show that rational behavior by individuals can lead to sub-optimal outcomes.

4. Pareto Optimal: If there is no other outcome that makes every player at least as well off and one player strictly better off. If you can improve one player’s outcome without harming anyone else, then it's not a Pareto Optimal.

5. Assumptions No loyalty or trust between parties All outcomes are on the game board Game is only played once Players aren’t worried about retribution

6. Common Knowledge: Everyone knows all the strategies and everyone know that everyone else knows all the strategies.

7. Prisoners Dilemma Example

8. Dominant Strategy: A player will chose one strategy no matter what the other players do.

9. Dominant Strategy Equilibrium: A Nash equilibrium where players have (and play) their dominant strategy. All Dominant Strategy Equilibrium is Nash equilibrium, but not all Nash equilibrium is Dominant Strategy Equilibrium.

10. Dominated Strategy: A strategy that is never a best response to another player’s choice. Player will never choose strategy that is dominated. If there is no dominant strategy then there is always a dominated strategy.

11. Searching for the Nash Equilibrium Pick any square to start Fix player 1’s strategy and see if other player has incentive to change. Repeat until you find a place where neither player has incentive to deviate. Because there can be more than one Nash equilibrium, vary who was

aloud to change first or pick a different square to start. A good place to start is best outcome. No dominant strategy can frequently lead to multiple Nash equilibrium

12. Zero Sum Game: Sum of outcomes = 0. If 1 player benefits, other player looses.

13. Pure Strategies: Players choose one of the options available to him.

14. Mixed Strategies: Players randomizes between strategies, assigning each one a probability.

15. One Shot Game: Game is played only once

16. Simultaneous Move Game: All players move at the same time

17. Sequential Games: Players move in terns.