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52 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Marginal utility |
The additional satisfaction derived from consuming an additional unit of a good. |
Ice cream |
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Price elasticity of demand |
%Δ QD / %Δ P... indicates how responsive consumers are to change in product prices |
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Normal good vs inferior good |
Normal goods demand increase with income raises while demand for inferior goods fall with higher income |
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Elastic demand |
Elasticity coefficient greater than 1 |
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Inelastic demand |
Elasticity coefficient Less than 1 |
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Inelastic vs Elastic Demand Curve |
Inelastic= l ELASTIC= --- Unit elastic= ( |
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Price elasticity of demand determinants |
Substitutes products effect on Consumers budget |
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Catagories of entry barriers PEG C |
Patent Economies of scale Government restraints Control of resources |
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Monopoly vs Oligopoly |
Monopoly has only 1 firm selling a product without competition while oligopoly has a few sellers competing with a product |
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Collusion |
Agreement among firms to avoid certain competitive practices such as price reductions. |
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Natural Monopoly |
Average cost of production is lowest when only one firm produces all output.. Economies of scale.. |
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Market Power |
Ability of a firm to earn large profits due to weak or few competitors |
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Sherman Anti-Trust Act (1890) |
attempts to prevent the artificial raising of prices by restriction of trade or supply |
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Clayton Anti-Trust Act |
Amendment to Sherman. Attempts to prohibit anti competitive acts |
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Federal Trade Commission Act of 1914 |
Commission is empowered to prevent unfair methods of competition |
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Comparative Vs Absolute Advantage |
Comparative is the best opportunity cost while Absolute is best production rate |
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Beneficiaries of Exporting Countries |
Domestic producers due to higher world prices |
World Price higher than domestic |
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Beneficiaries of Importing Countries |
Importing consumers due to increase in domestic supply |
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Tariff and Quota Beneficiaries |
Domestic producers due to higher prices and government due to taxes collected |
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Arguments against free trade |
National Defense Infant Industry Anti-Dumping |
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General Agreement on Tariff and Trade (GATT) |
Created after WWII; Sets rules for conduct of trade and reduces trade barriers |
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World Trade Organization (WTO) |
New name for GATT (1994) monitors and enforces trade agreements for 159 countries |
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North American Free Trade Agreements (NAFTA) |
1994 Agreements amongst neighboring countries like US, Mexico and Canada to get rid of trade barriers |
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Cause Change in Demand |
InPorTEN |
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Legal ways to restrict Competition |
Patent Licenses Education |
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Selling product below cost |
minimize sunk cost Increase other sales |
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Predatory Prices |
1) Sell below cost 2) Intent to drive out competition 3) Increase prices |
Wal Mart |
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3 Types of Mergers |
Horizontal: Previous rivals (two airlines) Vertical: Supplier w/ Buyer Conglomerate: Unrelated firms |
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Residual Claimant |
Person who receives excess revenue of a firm if costs are reduces and/or revenues increase |
Beneficiary of firm success |
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3 Business Structures |
Proprietorship Partnership Corporation |
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Proprietorship |
Firm owned by single owner who takes all the risks |
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Partnership |
Firm owned by multiple owners who share all risks |
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Corporation |
Joint stock companies whose shares are divided into multiple stockholders with lower risks |
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Explicit Costs |
Those costs paid for resources Wages, Interest, Rent |
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Implicit Costs |
Opportunity costs associated with firms use of resources. Highest valued alternative forgone. |
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Economic Profit |
Total Revenue - Total (Explicit + Implicit) Costs |
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Accountant Profit |
Total Revenue - Total Explicit Cost |
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Fixed Cost |
Costs which do not change by quantity of output (Rent) |
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Variable Cost |
Costs which change with output level (Ingredients) |
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Marginal Cost |
Costs required to produce an addition unit |
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Diseconomies of Scale
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Increase in the per unit costs resulting from larger production (gold digging) |
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Economies of scale |
Reduction in per unit cost resulting from large volumes of production Ie. Making 10 a/c or 100 a/c in a plant |
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Sunk Costs |
Costs which have already been incurred in the past. |
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Price Searchers |
Choose the price at which they will sell their product in the market (Nike) |
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Price Takers |
Sellers who must take the market prices in order to sell their product (Eggs) in pure competition |
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Pure Competition |
1) Firms produce identical product 2) Large number of firms exist 3) Ea. Supplier is small portion of market 4) No barriers to entry or exit |
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Marginal Revenue |
Incremental change in total revenue derived from sale of one additional unit MR= Δ TR/ Δ Output |
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Shutdown Vs Market Exit |
Shutdown is temporary and stop variable costs while keeping fixed costs and assets while Exiting requires selling all assets and eliminating all costs |
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Competitive Price Searcher Market |
Market in which has 1) Downward sloping demand curve (elastic) 2) low entry barriers |
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Differentiated Products |
Products distinguished from similar products by quality, design, location etc (Burger). |
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Contestable Marker |
Market in which cost to entry and exit are low and allow entering firms to take on little risks. |
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Price Discrimination |
Charging different prices to different ppl for same good (Senior discounts)
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