Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Managerial Economics > 02.02. Competitive Markets > Flashcards

02.02. Competitive Markets Flashcards

1
Q

Why do economists think that competition on free markets is good?

1.
2.
3.
4.
5.

A
  • drives efficiency
  • innovation
  • growth
  • individual freedom
  • superiority over planned economies
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Definition Market

A

Collection of buyers and sellers that, through their actual or potential interactions, determine the price of a product or set of products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are the 7 (+1) characteristics of perfeclty competitive markets?

1.
2.
3.
4.
5.
6.
7.
8.

A
  1. numerous buyers and sellers and no one has a substantial share of the market.
  2. All buyers and sellers can freely and immediately enter or leave the market.
  3. Every buyer and seller has full and perfect knowledge of what every other buyer and seller is doing.
  4. The goods being sold in the market are so similar to each other that no one cares from whom each
    buys or sells.
  5. All buyers and sellers are fully informed about the characteristics of the good.
  6. All buyers and sellers are utility maximizers.
  7. No external parties (i.e. government) regulate the price, quantity, or quality of any of the goods
    being bought / sold in the market.
  8. Buyers and sellers are both price takers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why is it that in perfectly competitive markets, not only consumers but also producers are price takers?

A

because a firm that is perfectly competitive in output markets (which in reality rarely exist) has no or little ability individually to affect the market price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

The supply curve is determined by…

A

marginal costs of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

A buyer’s willingness to pay is influenced by…

1.
2.
3.
4.
5.

A
  • The buyer’s tastes or needs
  • A consumer’s income or wealth
  • Prices and availability of substitute goods
  • Complementary goods
  • The number of buyers in the market
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Where the price elasticity of demand (supply) is high, the demand (supply) curve is…

Which means what? And what are the consequences?
1.
2.
3.

A

nearly flat

it means that a small increase in price evokes a lot of new output on the supply side
o Facilities used for other things can be readily converted to producing the good in question
o Capacity can be easily expanded
o New firms can enter the business readily

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

A seller’s marginal cost is influenced by…

1.
2.
3.

What do changes in these factors imply?

A
  • The seller’s costs of production
  • Technological progress
  • The number of sellers in the market

Changes in the factors above alter the marginal costs -> shift the seller’s supply curve up or down

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Definition of Market Mechansim

A

Tendency in a free market for price to change until the market
clears.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

For a competitive firm, price equals (1) which means that it can only decide on (2)

As a result, its managers need to worry (3)
They choose output so that (4)

A
  1. marginal costs
  2. the quantity of the product it is willing to sell at a given price
  3. only about the cost side of the fimrs operation
  4. price is equal to marginal costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Together, consumer and producer surplus
measure the

A

welfare benefit of a
competitive market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If demand is very inelastic relative to supply,
the burden of the tax falls mostly on… (1)

If demand is very elastic relative to supply, it falls
mostly on… (2)

A
  1. buyers
  2. sellers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Definition Perfect Competition

A

In a perfectly competitive market, each firm is a price taker, which means the firm faces a horizontal demand curve for its product

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What do we know about….

  1. Competition in the Short Run?
  2. Competition in the Long Run?
A
  1. Short-run marginal costs determine a profit-maximizing, competitive firm’s short-run supply curve and the market supply curve, which, when combined with the market demand curve, determines the competitive equilibrium
  2. Firm supply, market supply, and the competitive equilibrium may be different in the long run than in the short run because firms can vary inputs that were fixed in the short run
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is meant by “Perfect Competition Maximizes Economic Well-Being”?

A

Perfect competition maximizes a widely used measure of economic well-being for society

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is a “Supply and Demand-Analysis”?
What are examples of it?

A

a fundamental and powerful tool that can be applied to a wide variety of interesting and important problems

  1. understanding and predicting how changing world economic conditions affect market price and production
  2. evaluating the impact of government price controls, minimum wages, price supports, and production incentives
  3. determining how taxes, subsidies, tariffs, and import quotas affect consumers and producers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the two key decisions a firm has to make?

1.
2.

A
  1. whether to compete in the market at all (long run)
  2. how much to produce in the light of current market conditions (short run)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

A firms decision about how much to supply in the short run starts with….

A

its costs

19
Q

Fixed costs?

Variable costs?

Marginal Costs?

A
  1. Fixed costs are unavoidable and should not influence immediate choices (in the short run)
  2. Variable costs vary with level of production
  3. only marginal costs should affect short run supply decisions (here: consider both cash and opportunity costs)
20
Q

The slope of the marginal costs curve typically….

A

… slopes upwards, since it becomes increasingly costly to
squeeze incremental output out of busy production lines and already hard-working personnel

21
Q

In a long run decision, xxx are pivotal for a firm to enter or leave the market

  1. in the long run, xxxx are avoidable
A

fixed costs

22
Q

The typical average cost curve has a distinctive (1)-shape due to (2)
As long as the price remains above the average cost curve, (3)

A
  1. U-shape
  2. the opposing effect of fixed and marginal costs
  3. economic theory says that the firm should continue to reinvest in fixed assets to stay in business
23
Q
  1. A firm should enter or remain in business as long as…
  2. The firm should expand its output until
A
  1. it expects the market price to
    be greater than it’s average total costs
  2. the marginal cost of an incremental unit rises to the market price
24
Q

Impact of Price Controls | Do firms as producers benefit or suffer from it?

A

they profit from minimum prices (also from tariffs) beacue they increase producer surplus (at the cost of consumers)

25
Q

impact of an import quota | do domestic firms benefit or suffer from it?

A

they profit from import quotas (as well as from tariffs) because they increase their producer surplus (at the cost of consumers, facing decreasing consumer surplus)

26
Q

impact of a tax | do firms as sellers benefit or suffer from it?

A

Firms as sellers always bear some burden of a tax, the amount of which depends on elasticities

27
Q

Why do economists do not support government interventions?

A

because all these forms of government intervention (price controls, import quota, tax) result in welfare losses, which is why economists do not
support them

28
Q

The degree to which a tax is passed through to consumers depends on…

A

the shapes of the demand and supply curve

29
Q

In the long-run, the supply curve is….
However, the U.S. shortrun supply curve of gasoline is….

A

upward sloping, as in our typical figure
very close to vertical

29
Q

In a perfectly competitive market, each firm faces a (1: elastic, inelastic?) demand curve, meaning they (2: sell at which Q?) but (3)

A
  1. perfectly elastic
  2. sell any quantity of their product at the market price
  3. charge a higher price
30
Q

Production Function Definition

A

summarized how a firm conerts inputs into outputs using one of possibly many available technologies

31
Q

Define:

  1. Short run production
  2. long run production
A
  1. in the short run, only some inputs can be varied, so the firm changes its output by adjusting its variable inputs
  2. in the long run, all factors of production can be varied, and the firm has more flexibility than in the short run in how it produces and how it changes its output level
32
Q

What is Returns to scale used for?

A

its the ratio of output to input. it varies with the size of the firm and is an important factor in determining the size of a firm

33
Q

Categories of Elasticity. What do the following numbers imply:

  1. Ep>1
  2. 0<Ep<1
  3. Ep=1
  4. Ep= (infinite)
  5. Ep= 0
A
  1. relative elasticity of demand
  2. relative inelasticity of demand
  3. unitary elasticity of demand
  4. perfect elasticity
  5. perfect inelasticity
34
Q

What are factors affecting demand elasticity?

1.
2.
3.
4.

A
  • ease of subsitution
  • proportion of total expenditures
  • length of time period
  • durability of product (possibility of postponing purchase; possibility of repair; used product market)
35
Q

Regression analysis is used to estimate consumer demand. What are the two types of regression?

1.
2.

A
  1. cross-sectional: analyze several variables for a single period of time
  2. time series data: analyze a single variable over multiple periods of time
36
Q

What are common subjects of business forecasts?

1.
2.
3.

… And what should a good forecast entail?

1.
2.
3.
4.

A
  • GDP (gross domestic product); components are for example, consumption expenditure, producer durable equipment expenditure, residential construction
  • industry forecasts, e.g. sales of products across an industry
  • ## sales of specific product
  • be consistent with other parts of the business
  • be based on knowledge of the relevant past
  • consider the economic and political environment as well as changes
  • be timely
37
Q

Name the six forecasting techniques

1.
2.
3.
4.
5.
6.

A
  • expert opinion
  • opinion polls and market research
  • survey of spending plans
  • economic indicators
  • projections
  • econometric models
38
Q

Whar are factors in choosing the right forecasting technique?

1.
2.
3.
4.

A
  • item to be forecast
  • interaction of the situation with the forecasting methodology (the value and costs)
  • amount of historical data available
  • time allowed to prepare forecast
39
Q

What is….

  1. a process innovation?
  2. an organizational innovation?
A
  1. it changes the production function (is also called technological progress): more output can be produced with same input levels!
    -> techn. progress is neutral if more output is produced using the same ratio of inputs
    -> techn. progress is non-neutral if it is capital or labor saving
  2. this may also alter the production function and increase the amount of outpur produced by a given amount of inputs (e.g. henry ford who revolutionized mass car production through interchangeable parts the the assembly line)
40
Q

Quota | Definition

Tariff (ZOLL!!!!) | Definition

A

A quota is a limit on the amount of a specific good that can be imported into a country. (-> results in higher prices)

A tariff is a tax imposed on imported goods.

41
Q

If demand is very inelastic relative to supply,
the burden of the tax falls mostly…

A

… on buyers

42
Q

A (any) firm sets its output where….

  1. marginal profit is zero
  2. marginal revenue is maximized
  3. profit is mazimized
  4. marginal profit equals marginal revenue
  5. marginal profit is maximized
A
  1. yes
  2. no
  3. yes
  4. no
  5. no

Managerial Economics (15 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions