business exam q-s vol2 Flashcards
What is deflation?
Deflation is when the prices of goods and services decrease across the entire economy, increasing the purchasing power of consumers.
What could cause deflation?
A decline in aggregate demand typically results in subsequent lower prices. Causes of this shift include reduced government spending, stock market failure, consumer desire to increase savings, and tightening monetary policies (higher interest rates).
What is producer surplus? Will be exercise
The producer surplus occurs when the price that a seller would receive for their goods at market value is greater than the lowest price that they would accept for them.
What causes inflation?
More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.
What are fixed cost?
Fixed costs are costs that do not change when sales or production volumes increase or decrease. This is because they are not directly associated with manufacturing a product or delivering a service. As a result, fixed costs are considered to be indirect costs. Examples of fixed costs are rent and lease costs, salaries, utility bills, insurance, and loan repayments.
What are fixed cost (at least in medium term) and what are variable cost in bakery industry?
The bakery’s fixed costs consist of rent, bakery equipment, taxes, insurance, and utilities. The bakery’s variable costs for making one loaf of bread are $1.80. These costs include bakery ingredients, marketing, and overhead. The bakery has a list price of $5 for each loaf of bread it sells.
What are variable cost?
Variable costs are any expenses that change based on how much a company produces and sells. This means that variable costs increase as production rises and decrease as production falls. Some of the most common types of variable costs include labor, utility expenses, commissions, and raw materials.
Which economy sectors have relatively high fixed cost? Explain answer.
Steel is a high fixed cost industry. Steel companies have capital investments such as factories and large machinery. Other high fixed cost companies are airlines, automobile manufacturers, and pharmaceutical companies.
Any of these industries require large amounts of capital investments or R&D expenditures (research and development expenses).
Which economy sectors have relatively high variable cost? Explain answer.
Typically businesses with high turnover of physical products are associated with high variable costs. These might include grocery stores, departments stores and some clothes retailers.
What is sunk cost? Examples
A sunk cost refers to an investment already incurred that can’t be recovered. Examples of sunk costs in business: marketing, research, new software installation or equipment, salaries and benefits, or facilities expenses.
What is law of diminishing marginal productivity? example
An economic rule governing production which holds that if more variable input units are used along with a certain amount of fixed inputs, the overall output might grow at a faster rate initially, then at a steady rate, but ultimately, it will grow at a declining rate.
For example, consider a farmer using fertilizer as an input in the process for growing corn. Each unit of added fertilizer will only increase production return marginally up to a threshold. At the threshold level, the added fertilizer does not improve production and may harm production.
What means economies of scale?
Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods. Costs can be both fixed and variable.
What means economies of scope?
Economies of scope is an economic principle in which a business’s unit cost to produce a product will decline as the variety of its products increases. In other words, the more different-but-similar goods you produce, the lower the total cost to produce each one will be.
What is marginal cost?
the cost added by producing one additional unit of a product or service.
What is marginal revenue?
the revenue gained by producing one additional unit of a product or service.
