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Business Economic Concepts > Economic Concepts and Analysis > Flashcards

Economic Concepts and Analysis Flashcards

1
Q

How is demand and market demand curve sloped?

A

Negatively

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2
Q

How does changes in the quantity of demand affect the curve?

A

Its a movement along a given demand curve as a result of change of price in a commodity

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3
Q

How does changes in demand affect the curve?

A

A shift of the entire demand curve; which is caused by changes in variables other than price (mkt size, income, substitutes)

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4
Q

What is derived demand?

A

Is the demand for a good or service that results because it is an input needed in order to provide another good or service for which there is a demand

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5
Q

How is supply and market supply curved sloped?

A

Positively

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6
Q

As prices increases what happens to the aggregate supply of a commodity?

A

It increases

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7
Q

What is the market equilibrium price?

A

Qty of commodity supplied in the market is equal to the qty of the commodity demaded

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8
Q

What is a market shortage?

A

the actual price is less than the equilibrium price; therefore, the actual quantity supplied is less than the quantity demanded

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9
Q

What is a market surplus?

A

The actual price is higher than the equilibrium price; therefore, the actual quantity supplied is greater than the quantity demanded

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10
Q

What does elasticity measures?

A

Measures the % change in market factor as a result of a given % change in another market factor

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11
Q

What is elasticity of demand?

A

measures the % change in qty of a commodity demanded as a result of a given % in price of a commodity

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12
Q

How to calculate the elasticity of demand?

A

% change in quantity demanded / % change in price

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13
Q

What are the factors that affect elasticity of demand?

A
  1. Availability of substitutes - more substitutes more elasticity
  2. Extent of necessity - the more necessary a good or service, the more inelastic demand
  3. Share of disposable income - the larger the share of income the more elastic
  4. Postchange time horizon - the longer the time following a price change the more elastic demand of good
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14
Q

Why is price of elasticity important for a firm?

A

Because it indicates the extent to which a firm is likely to be able to pass in its cost of inputs to the customer:

  1. If the demand for a good or service is inelastic, them the firm can increase its selling price with less negative financial impact
  2. If the demand for a good or service is highly elastic, it cannot increase its selling price without significant negative financial impact
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15
Q

What is cross elasticity of demand?

A

Measures the % change in the quantity demanded as a result of a given % in the price of another commodity

  1. When the cross elasticity coefficient is greater than 0 the goods are substitutes
  2. When the coefficient is less than 0 the goods are complimentary
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16
Q

What is the marginal utility calculation?

A

MU/price of unit

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17
Q

A monopoly exist as a result of what?

A
  1. Control of raw material inputs or processes (e.g. patent)
  2. Government action (e.g. government franchise)
  3. Increasing return to scale (natural monopolies, e.g. public utilities)
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18
Q

What is a cartel?

A

A cartel is a group of firms that conspire to make price and output decisions for a product or service; it is a overt collusion and illegal

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19
Q

What is collusive pricing?

A

When a few firms in an oligopolistic market conspire to set the price at which a good or service will be provided. Such collusion typically is carried out to establish a price higher than would exist under normal competition

20
Q

What are leakages?

A

The amount of individual income that are not spent on domestic consumption (taxes, savings, imports)

21
Q

What are injections?

A

Amounts of expenditure not for domestic consumption added to the domestic production (government spending, subsidies, investments)

22
Q

What is the aggregate demand curve?

A

Measures the total spending of individuals, businesses, governmental entities, and net foreign spending on goods and services at different price levels. The demand curve is negatively sloped

23
Q

What are the components of aggregate demand?

A
  1. Consumer spending
  2. Investment
  3. Government Spending and Fiscal Policy
  4. Net Exports/Imports
24
Q

What is the formula for Marginal propensity to consume (MPC)?

A

change CS/change DI

25
Q

What is the formula for Marginal propensity to save (MPS)?

A

change savings/change DI

26
Q

What is a discretionary fiscal policy?

A

When a government directly affect aggregate demand by changing tax receipts, government expenditures or both.

This is used to close recessionary gaps (increase demand to full employment level, or close inflationary gaps (reduce demand to the full employment level)

27
Q

Why is aggregate demand curve negatively sloped?

A
  1. Interest rate factor (interest increase, spending decrease)
  2. Wealth level factor (price levels increase, value of financial assets may decrease, as wealth decrease, spending decrease)
  3. Foreign purchasing power factor (as domestic price level increase, domestic goods are more expensive than foreign goods)
28
Q

What are the 3 theoretical curves for aggregate supply?

A
  1. Classical Aggregate Supply curve - vertical, no relationship between supply and price
  2. Keynesian Aggregate supply curve - horizontal (output not associated with price level) up to the assumed level of output at full employment, then it slopes upward (increased output is associated with higher price levels)
  3. Conventional Aggregate Supply Curve - continuous positive slope with a steeper slope beginning at the level of output at full employment (at increased output there is proportionately higher increases in price levels)
29
Q

What are the changes in variable that causes a shift in supply curve?

A
  1. Resources Availability
  2. Resource Cost
  3. Technology Advances
30
Q

What does real GDP measures?

A

The total output of final goods and services produced for exchange in the domestic market during a period at constant prices

31
Q

What does potential GDP measures?

A

The maximum final output that can occur in the domestic economy at a point in time without creating upward presser on the general level of prices in the economu

32
Q

What does Net Domestic product measures

A

GDP less a deduction for capital consumption during the period - the equivalent of depreciation

33
Q

What is the difference between spot exchange rate, forward exchange rate and exchange rate discount or premium?

A
  1. Spot exchange rate - the exchange rate between currencies for immediate delivery
  2. Forward exchange rate - the exchange rate between currencies existing at the present for future delivery
  3. Exchange rate discount or premium - the difference at a point in time between the spot exchange rate and the forward exchange rate for two currencies
34
Q

What are the 5 factors that determine currency demand?

A
  1. Political and economic environment
  2. Relative interest rate
  3. Relative inflation
  4. Public debt level
  5. Current account balance
35
Q

What is the supply of currency determined by?

A

The country’s fiscal and monetary policies

36
Q

When a currency becomes stronger - or appreciates the value of a currency has increased relative to another currency; it takes less of a currency to buy another currency, what else also happens?

A

A. Foreign gods become cheaper, providing consumers access to a wider array of goods at lower prices

B. Domestic producers maintain lower prices, thus encouraging efficiency and putting downward pressure on inflation

C. Domestic producers have more difficulty in competing in both domestic markets and foreign markets

37
Q

When a currency becomes weaker or depreciates the value of the currency has decreased relative to another currency, it take more of that currency to buy another currency, what else happens?

A

A. Domestic goods become cheaper relative to foreign goods, thus increasing export demand

B. Increased export demand increases domestic employment

C. Imported goods become more expensive, which drives up the cost of imported inputs (raw materials)

38
Q

What are the three currency exchange risk?

A
  1. Transaction risk - the possible unfavorable impact of changes in currency exchange rates on transactions denominated in a foreign currency
  2. Translation risk - change in exchange rates directly affect the translated value of income statement and balance sheet items
  3. Economic risk - future costs, prices and sales
39
Q

What is PEST Analysis?

A

Provides a framework for analyzing external macro environmental analysis

40
Q

What are the elements of PEST analysis?

A

A. Political
B. Economic
C. Social
D. Technology

41
Q

What are the factors for PEST - EL?

A

A. Environmental

B. Legal

42
Q

What is PEST used for?

A

In considering the establishment of operations in a new foreign location

43
Q

What are Michel Porter’s five forces?

A

To determine the operating attractiveness and likely long-run profitability of an industry

A. Threat of Entry into the Market by new competition
B. Threat of Substitute Gods or Services
C. Bargaining power of buyers (customers)
D. Bargaining power of suppliers
E. Intensity of Rivalry

44
Q

What is the SWOT analysis?

A

SWOT analysis provides a framework of carrying out an assessment of the relationship between and entity and an operating environment

45
Q

What are the elements for SWOT analysis?

A

A. Strengths - resources and capabilities that provide the entity a relative competitive advantage

B. Weakness - shortcomings of an entity that place the entity at a relative competitive disadvantage

C. Opportunities - chances to benefit from external or unmet demand

D. Threats - chances of adverse consequences to an entity

46
Q

What is the 3 strategic strategies in Macroeconomics?

A
  1. Cost Leadership
  2. Differentiation
  3. Focus - niche market

Business Economic Concepts (5 decks)

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