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Economics > Demand, Types of Businesses, and Elasticity > Flashcards

Demand, Types of Businesses, and Elasticity Flashcards

1
Q

demand

A

different quantities of goods that consumers are willing and able to buy at different prices

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2
Q

what is the law of demand?

A

there is an inverse relationship between price and quantity demand

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3
Q

substitution effect

A

If the price goes up for a product, consumer buy less of that product and more of another substitute product (and vice versa)

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4
Q

income effect

A

If the price goes down for a product, the purchasing power increases for consumers -allowing them to purchase more.

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5
Q

law of diminishing marginal utility

A

utility=satisfaction

as you consume anything, the additional satisfaction that you will receive will eventually start to decrease

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6
Q

Ceteris paribus

A

“all other things held constant.”

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7
Q

shift

A

at the same prices, more people are willing and able to purchase that good.

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8
Q

Does price shift the curve?

A

no

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9
Q

what causes a shift in demand?

A
  1. tastes and preferences
  2. number of consumers
  3. price of related goods
  4. income
  5. future expectations
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10
Q

substitutes

A

goods used in the place of another

if price of one increases, the demand for the other will increase

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11
Q

complements

A

two goods that are bought and used together

if the price of one increase, the demand for the other will fall

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12
Q

normal goods

A

as income increases, demand increases

as income falls, demand falls

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13
Q

inferior goods

A

as income increases, demand falls

as income falls, demand increases

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14
Q

advantages of sole proprietors

A 
ease of start up
ease of management
you keep all profits
no business taxes
Psychological advantages
ease of exit
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15
Q

weaknesses of sole proprietors

A 
unlimited liability 
difficulty in raising financial capital
limited size and efficiency
limited managerial experience
limited life
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16
Q

general partnership

A

all partners are responsible for management and the financial responsibilities of the partnership. (most common)

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17
Q

limited partnership

A

at least one partner is not active in the day to day running of the business. They have limited liability.

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18
Q

articles of partnership

A 
contract between partners spelling out the rules of the partnership
dividing profit
dividing responsibility
admitting new partners
buying out partners
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19
Q

advantages of partnerships

A 
Ease of establishment
 Ease of Management: each partner has different things to offer
No special business taxes
Easier to raise financial capital
Larger than sole proprietorship
Easier to attract qualified workers
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20
Q

weaknesses of partnerships

A

Unlimited liability
Limited partner is only responsible for his initial investment. He has limited liability.
Limited Life
Conflict between partners

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21
Q

incorporate

A

to form a corporation

22
Q

charter

A

a document granted by the state giving a corporation the right to do business

23
Q

stock

A

shares of ownership in the corporation

24
Q

stockholders

A

owners of stock

25
Q

common stock

A

basic share of ownership in a corporation

have voting rights in the management of the company

26
Q

preferred stock

A

nonvoting shares of ownership
guaranteed dividend
liquidation benefit- if corporation goes out of business they are ahead of stockholders in getting back money
board of directors- duty to direct the corporations business by setting board policies and goals

27
Q

elected by common stockholders

A

hires a professional management team to run day to day activities

28
Q

advantages of a corporation

A

Ease of raising financial capital (main advantage)
Selling stock to investors
Selling bonds: a written promise to repay a loan on a specific date
Principal: the amount borrowed
Interest: the price paid for the use of another’s money
Borrowing money from banks.
Ability to hire
Limited liability
Unlimited life
Ease of transferring ownership:. Buying and selling stock is easy and is done millions of times a day

29
Q

disadvantages of corporations

A

Start up expenses are high.
Stockholders (owners) have a limited
Profits are taxed
Corporations are subject to more government regulations than sole proprietors or partners

30
Q

labor unions

A

organization of workers formed to represent its member’s interests in varying employment matters. Collective bargaining

31
Q

professional associations

A

group of people in a specialized field that work to improve their working conditions.

32
Q

chamber of commerce

A

promote economic growth of the community

33
Q

better business bureau

A

cops for businesses

34
Q

5 reasons to merge

A

Make money faster, Increase efficiency, Acquire new product lines, Catch up or eliminate rivals, Lose a company identity

35
Q

horizontal merge

A

when two or more companies that produce the same product join forces

36
Q

vertical merger

A

when two or more firms that are at different steps of manufacturing process join together.

37
Q

conglomerates

A

firm that has at least 4 businesses, each making unrelated products

38
Q

____% of businesses are sole proprietors

A

72%

39
Q

9% of businesses

A

partnerships

40
Q

20% of businesses; 74% of profits

A

corporations

41
Q

elasticity

A

shows how sensitive quantity is to a change in price

42
Q

price elasticity demand

A

Measurement of consumers responsiveness to a change in price.

43
Q

who uses price elasticity demand?

A

Used by firms to help determine prices and sales

Used by the government to decide how to tax

44
Q

inelastic demand

A

Quantity is INsensitive to a change in price.

45
Q

characteristics of inelastic goods

A 
Few Substitutes
Necessities
Small portion of income
Required now, rather than later 
Elasticity coefficient less than 1
46
Q

elastic demand

A

quantity is sensitive to a change in price

47
Q

characteristics of elastic goods

A 
Many Substitutes
 Luxuries
 Large portion of income
 Plenty of time to decide
 Elasticity coefficient greater than 1
48
Q

total revenue test

A

Uses elasticity to show how changes in price will affect total revenue

49
Q

total revenue test for inelastic

A

Price increase causes TR to increase

Price decrease causes TR to decrease

50
Q

total revenue test for elastic

A

Price increase causes TR to decrease

Price decrease causes TR to increase

51
Q

unit elastic

A

Price changes and TR remains unchanged

Economics (4 decks)

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