CH. 1 Managers and Economics

Question 1

Microeconomics

Answer 1

The branch of economics that analyzes the decisions that individual consumers, firms and industries make as they produce, buy and sell goods and services.

Question 2

Managerial Economics

Answer 2

Microeconomics applied to business decision making.

Question 3

Prices

Answer 3

The amounts of money that are charged for goods and services in a market economy. Prices act as signals that influence the behaviors of both consumers and producers of these goods and services.

Question 4

Outputs

Answer 4

The final goods and services produced and sold by firms in a market economy.

Question 5

Inputs

Answer 5

The factors of production, such as land, labor, capital, raw materials, and entrepreneurship, that are used to produce the outputs, or final goods and services that are bought and sold in a market economy.

Question 6

Macroeconomics

Answer 6

The branch of econ that focuses on the overall level of the economic activity, changes in the price level and the amount of unemployment by analyzing group or aggregate behavior in different sectors of the economy.

Question 7

Relative Prices

Answer 7

The price of one good in relation to the price of another, similar good, which is the way prices are defined in microeconomics.

Question 8

Markets

Answer 8

The institutions and mechanisms used for the buying and selling of goods and services.

Question 9

(4) Types of Markets

Answer 9

1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly

Question 10

(4) Major Characteristics that distinguish the market structures

Answer 10

1. The number of firms competing with one another that influences the firm’s control over its price.
2. Whether the products sold in the markets are differentiated or undifferentiated.
3. Entry into and exit from the market by other firms is easy or difficult.
4. The amount of information available to the market participants.

Question 11

Perfect Competition

Answer 11

1. A large number of firms in the market
2. An undifferentiated product
3. Ease of entry into the market
4. Complete information available to all market participants
   Eg. Agricultural Industries

Question 12

Price-taker

Answer 12

A characteristic of a perfectly competitive form in which the firm cannot influence the price of its product, but can sell any amount of its output at the price established by the market. Eg. Agricultural Industries

Question 13

Profit

Answer 13

The difference between the total revenue that a firm receives for selling its product and the total cost of producing that product.

Question 14

Market Power

Answer 14

The ability of a firm to influence the prices of its products and develop other competitive strategies that enable it to earn large profits over longer periods of time.

Question 15

Imperfect Competition

Answer 15

Market structures of monopolistic competition, oligopoly, and monopoly, in which firms have some degree of market power.

Question 16

Monopoly

Answer 16

A market structure characterized by a single firm producing a product with no close substitutes.

Question 17

Barriers to Entry

Answer 17

Structural, legal, or regulatory characteristics of a firm and its market that keep other firms from easily producing the same or similar products at the same cost. (Monopoly)

Question 18

Monopolistic Competition

Answer 18

A market structure characterized by large number of small firms that have some market power as a result of producing differentiated products. This market power can be competed away over time.

Question 19

Oligopoly

Answer 19

A market structure characterized by competition among a small number of large firms that have market power, but that must take their rivals’ actions into account when developing their own competitive strategies.

Question 20

Profit Maximization

Answer 20

The assumed goal of firms, which is to develop strategies to earn the largest amount of profit possible. This can be accomplished by focusing on revenues, costs, or both.

Question 21

(3) Microeconomic influences on Managers

Answer 21

1. How consumer behavior affects their revenue
2. How production technology and input prices affect their costs
3. How the market and regulatory environment in which managers operate influences their ability to set prices and to respond to the strategies of their competitors.

Question 22

Circular Flow Model

Answer 22

Macroeconomic flow model that portrays the level of economic activity as a flow of expenditures from consumers to firms, or producers, as consumers purchase goods and services produced by these firms. This flow then returns to consumers as income received from the production process.

Question 23

Absolute Price Level

Answer 23

A measure of the overall level of prices in the economy.

Question 24

Personal Consumption Expenditures (C)

Answer 24

The total amount of spending by households on durable goods, nondurable goods, and services in a given period of time.

Question 25

Gross Private Domestic Investment Spending (I)

Answer 25

The total amount of spending on nonresidential structures, equipment, software, residential structures, and business inventories in a given period of time.

Question 26

Government Consumption Expenditures and Gross Investment (G)

Answer 26

The total amount of spending by federal, state, and local governments on consumption outlays for goods and services, depreciation charges for existing structures and equipment, and investment capital outlays for newly acquired structures and equipment in a given period of time.

Question 27

Net Export Spending (F)

Answer 27

The total amount of spending on exports (X) minus the total amount of spending on imports (M) or (F=X-M) in a given period of time.

Question 28

Export Spending (X)

Answer 28

The total amount of spending on goods and services currently produced in other countries and sold to residents of a given country in a given period of time.

Question 29

Import Spending (M)

Answer 29

The total amount of spending on goods and services currently produced in other countries and sold to residents of a given country in a given period of time.

Question 30

Gross Domestic Product (GDP)

Answer 30

The comprehensive measure of the total market value of all currently produced final goods and service within a country in a given period of time by domestic and foreign-supplied resources.

Question 31

(3) Factors Affecting Macro Spending Behavior

Answer 31

1. Changes in the consumption and investment behavior of individuals and firms in the private sector of the economy
2. New direction taken by a country’s monetary or fiscal policy-making institutions (gov/bank)
3. Developments that occur in the rest of the world that influence the domestic economy.

Question 32

Monetary Policies

Answer 32

Policies adopted by a countries central bank that influence the money supply, interest rates and the amount of funds available for loans, which, in turn, influence consumer and business spending.

Question 33

Fiscal Policy

Answer 33

Changes in taxing and spending by the executive and legislative branches of a country’s national government that can be used to either stimulate or restrain the economy.

Question 34

GDP and Circular Flow Pneumonic

Answer 34

CIG X MYSTT