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Investment Foundations > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Focuses on the decisions made by individual consumers and companies

A

Microeconomics

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2
Q

Focuses on the economy as a whole and considers the effects such factors as inflation, interest rates and unemployment have on economic activity.

A

Macroeconomics

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3
Q

Focuses on the exchange of products, services, and capital across borders.

A

International trade

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4
Q

The study of production, distribution, and consumption for the study of choices in the presence of scarce resources, and it is divided into two broad areas.

A

Economics (microeconomics and macroeconomics)

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5
Q

Quantity demanded and price of a product are usually inversely related which is known as ______.

A

Law of demand

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6
Q

A measure of relative satisfaction.

A

Utility

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7
Q

The marginal (additional) satisfaction derived from an additional unit of a product decreases as more of the product is consumed.

A

Law of diminishing marginal utility

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8
Q

A change in demand for a product resulting from a change in purchasing power

A

Income effect

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9
Q

For most goods - called ________ - as income increased, demand increases too.

A

Normal goods

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10
Q

The relationship works in the opposite direction. That is, demand for ______ decreases as income increases.

A

Inferior goods

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11
Q

A product that could generally take the place of another product

A

Substitute product or substitute

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12
Q

Products that are frequently consumed together. When the price of the product decreases, it leads to an increase in demand for both the product and for its ___________ products.

A

Complementary products or complements

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13
Q

Demand for a particular product may be affected by prices of other products that are not substitute or complementary products. For example, a substantial increase in oil prices often causes demand for ________ products, including pizzas, to decrease.

A

Unrelated products

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14
Q

When the price of a product increases, the quantity supplied increases too

A

Law of supply

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15
Q

Occurs at the price where quantity demanded equals quantity supplied

A

Market equilibrium

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16
Q

The price at which the quantity demanded equals the quantity supplied. In other words, it is the point at which the demand and supply curves intersect.

A

Equilibrium price

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17
Q

How the quantity demanded or supplied changes in response to small changes in a related factor, such as price, income, or the price of a substitute or complementary product.

A

Elasticity

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18
Q

The percentage change in the quantity demanded of a product as a result of the percentage price change in that product.

A

Own price elasticity of demand

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19
Q

Products for which demand increases as price increases have positive own price elasticities. This result usually indicates that the product is a ________.

A

Luxury product

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20
Q

If price elasticity is between -1 and 0, the price elasticity is low, or ______.

A

Inelastic

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21
Q

If the price elasticity of demand is exactly -1, it is said that demand is ______.

A

Unit elastic

22
Q

When price elasticities is less than -1, the price elasticity of demand is _____, or ______.

A

High or elastic

23
Q

For a given percentage increase in price, the quantity demanded will decrease by a greater percentage than the increase in price.

A

Less than -1, negatively, highly elastic

24
Q

For a given percentage increase in price, the quantity demanded will decrease by the same percentage.

A

-1, negatively unit elastic

25
Q

For a given percentage increase in price, the quantity demanded will decrease by a lesser percentage than the increase in price.

A

Greater than -1 to 0, inelastic

26
Q

For a given percentage increase in price, the quantity demanded will increase by a lesser percentage than the increase in price.

A

Greater than 0 but less than 1, inelastic

27
Q

For a given percentage increase in price, the quantity demanded will increase by the same percentage.

A

+1, positively, unit elastic

28
Q

For a given percentage increase in price, the quantity demanded will increase by a greater percentage than the increase in price.

A

Greater than +1, positively, highly elastic

29
Q

The percentage change in the quantity demanded of a product in response to a percentage change in the price of another product.

A

Cross – price elasticity of demand

30
Q

What is the formula for the cross price elasticity of demand?

A

(Percent change in the quantity demanded of product one)/(Percent change in the price of product 2)

31
Q

A negative cross – price elasticity of demand, as in the case of coffee and cream indicates ________.

A

Complementary products

32
Q

A positive cross - price elasticity of demand characterises _______ in many but not all. It depends on how close of a ________ one product is for the other product. For example, a decrease in the price of Coke may be accompanied by a reduction in the quantity demanded of Pepsi.

A

Substitute products

33
Q

The percentage change in the quantity demanded of a product divided by the corresponding percentage change in income.

A

Income elasticity of demand

34
Q

A luxury product usually has an income elasticities of…

A

Greater than one

35
Q

A necessity product may have an income elasticity of….

A

Approximately 0

36
Q

Considers only the explicit costs

A

Accounting profit

37
Q

This takes a broader view of costs and also then deducts implicit costs from revenues and explicit costs to arrive at _______.

A

Economic profit

38
Q

The value forgone by choosing a particular course of action relative to the best alternative that is not chosen.

A

Opportunity cost

39
Q

Costs that do not fluctuate with the level of output of the company

A

Fixed costs or overhead

40
Q

Costs that fluctuate with the level of output of the company

A

Variable costs

41
Q

Cost savings arising from a significant increase in output without a comparable rise in fixed cost.

A

Economies of scale

42
Q

Although adding variable inputs of one factor, such as labor, to fixed inputs of production, such as machinery, increases total output, the gain in output will increase at a decreasing rate even if the fixed inputs of production remain unchanged.

A

Law of diminishing returns

43
Q

Refers to the extent to which fixed costs are used in production

A

Operating leverage

44
Q

The cost to the company of producing an incremental or additional unit

A

Marginal cost

45
Q

At one extreme, where there is a high degree of competition, a market is said to be _______. At the other extreme, where there is no competition, a market is said to be a ________.

A

Perfectly competitive/a monopoly

46
Q

Obstacles, such as licenses, brand loyalty, or control of natural resources, that prevent competitors from entering the market.

A

Barriers to entry

47
Q

Where there is no competition, a market is said to be a…

A

Monopoly

48
Q

A market where there are many buyers and sellers who are able to differentiate their products to buyers

A

Monopolistic competition

49
Q

A market dominated by small number of large companies because the barriers to entry are high.

A

Oligopoly

50
Q

A special case of oligopoly in which a group jointly controls the supply and pricing of products or services produced by the group.

A

A cartel

Investment Foundations (20 decks)

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