Chapter 05 Flashcards
Expansionary Phase
GDP increases firms’ profits rise and the demand for goods and services increases. To capitalize on the rising economic activity, business increases their capital investment
Peak
end of expansionary phase. Highest point of economic activity at that point firms are likely to face capacity constraints and labor shortages, which will put upward pressure
contractionary - recession
falling economic activity profit failling.
through
economic low point with no positive indicators for the future. unused productivity capacity and unwillingness to risk new investment
Monopolistic competition
independent firms
low barrier
product differention
some influence over price
- maintain market share and product differentiation
perfect competion
no product differentiation
and cant drive the price up or down
*maintain market share being responsive to market shares and responsiveness to sale price
Oligopoly
relative few firms
significant barrier to entry
large firms
kinked demand curve
*maintain market share, ensure product differentiation and adapting to changes in price and or production.
Monopoly
single firm
hard to enter market
no subs
demand inelastic
*ignore market share focus on profit
Fiscal Policy - Expansionary
entail more government spending and reduction of tax this stimulate growth
Fiscal policy - contractionary
reduce spending increase tax to slow economic growth and inflation
An increase in personal income taxes
an increase in personal income taxes will take money out of the consumers lead to a reduction in economic activity.
gdp falls and unemployment rise
Tools to control money supply
Open Market Operation - buy/selling gvmt sec
Discount rate - the interest rate the federal reserve charges its members for bank
required reserve ratio - money in bank required to hold
Competitive model of supply and demand predicts that surplus can only arise if there is
minimum price above the equilibrium price
inelastic curve
is vertical
.05
think insulin
Cause competition to be a stronger force
Market is not growing fast
there are several equal sized firms in the market
customer do not have strong brand preference
the cost of exiting the market exceeds the cost of continuing to operate
some profits from making certain moves to increase market share
various firms in the market use different types of strategic plans.
price discrimination
distinct segments of customers
cost leadership
inferior goods = seek to capture market share through maintaing low cost
differentition
superior = organization seeks to capture market share by demonstrating product value
price elasticity formula
percent change in qty demanded divided percent change in price
new - old/(old)
variation between business cycle attributes to
duration and intensity
inverse relationship between
price of the product and quantity demanded
the excess of supply over demand creates
surplus
