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BEC Exam > Economics > Flashcards

Economics Flashcards

1
Q

Perfect (Pure) Competition

A

no individual firm can influence the market price of its products, demand is perfectly elastic

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2
Q

Strategy under Perfect Competition

A

maintain the market share and responsiveness of the sales price to market conditions

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3
Q

Monopolistic Competition

A

many seller compete to sell a differentiated product in a market into which the entry of new sellers is possible

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4
Q

Strategy under Monopolistic Competition

A

maintaining market share, but also will likely include a plan for enhanced product differentiation and extensive allocation of resources to advertising, marketing, and product research

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5
Q

Oligopoly

A

few sellers dominate the sales of a product and entry of new seller is difficult or impossible, kinked demand curve

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6
Q

Strategies under Oligopoly

A

focus on market share and call for proper amount of advertising and ways to properly adapt to price changes or required changes in production volume

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7
Q

Monopoly

A

the classic utility company which was regulated, concentration of supply in the hands of a single firm, price setters

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8
Q

Strategy Under Monopoly

A

ignore market price and focus on profitability from production levels that maximize profits

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9
Q

Regardless of the model that represents the industry, the firm will operate best when…

A

Marginal Revenue equal Margin Cost

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10
Q

Expansionary Fiscal Policy

A

entails more government spending and reduction of taxes, overall spending increases and stimulates economic growth

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11
Q

Contractionary Fiscal Policy

A

reduced government spending and increase taxes, designed to slow down economic growth and reduce inflation

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12
Q

Impact on Decreased Taxes

A

Increase disposable income, increase AD, increase GDP, results in higher net income and profits, allowing potentially increase employee compensation, pay higher dividends, and have more money to invest in profitable projects

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13
Q

Impact on Increased Taxes

A

Decrease in disposable income, decrease in AD, decrease in prices

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14
Q

Monetary Policy

A

used by nations central bank (Federal Reserve) to affect the money supply, interest rates, and credit available in the economy, designed to promote stable prices, max employment , moderate interest rate and long term economic growth

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15
Q

3 Tools to Control Money Supply

A

open market operations, changes in discount rates, and changes in required reserve ratio

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16
Q

Open Market Operations

A

buying and selling government securities

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17
Q

Effect of Buying Government securities

A

increases money supply, decreases interest rates, increases aggregate demand - expands the economy

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18
Q

Effect of Selling Government securities

A

decreases money supply, increases interest rates, decrease aggregate demand and increases prices - contracts the economy

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19
Q

discount rate

A

interest rate the Federal Reserve charges it member banks for short-term loans

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20
Q

Effect of Increase Discount Rate

A

increases interest rates, discourages borrowing, reduces money supply - which slows down the economy

21
Q

Effect of Decrease Discount Rate

A

decreases interest rate, encourages borrowing, increase the money supply - stimulates the economy

22
Q

required reserve ratio

A

dictates how much money a bank is required to hold in its vault or on deposit with a Federal Reserve bank

23
Q

Effect on Increased required reserve ratio

A

decreases money supply, increases interest rates and decreases aggregate demand - contracts the economy

24
Q

Effect on decreased required reserve ratio

A

increases money supply, decreases interest rates, increases aggregate demand - expands the economy

25
Q

Quantity demanded is inversely related to price for 2 reasons:

A

Substitution Effect and Income Effect

26
Q

Substitution Effect

A

consumers tend to purchase more(less) of a good when its prices falls(rises) in relation to the price of other goods

27
Q

Income Effect

A

prices are lowered with income remaining constant, people will purchase more or all of the lower priced products

28
Q

Factors the Shift Demand Curve (WRITEN)

A

-changes in WEALTH
-changes in price of RELATED goods (substitutes and complements)
-changes in consumer INCOME
-Changes in consumer TASTE or preferences
-Changes in consumer EXPECTATIONS
-Changes in the NUMBER of buyers served by the market

29
Q

fundamental law of demand

A

price and quantity demanded are INVERSELY related

30
Q

fundamental law of supply

A

price and quantity supplied are POSITIVELY related

31
Q

Factors that shift Supply Curve (ECOST)

A

-changes in price EXPECTATIONS of supplying firm
-Changes in production COSTS (price of inputs)
-changes in the price or demand of OTHER goods
-changes in SUBSIDIES or taxes
-changes in production TECHNOLOGY

32
Q

price ceiling

A

MAX price that is established BELOW equilibrium price, which causes SHORTAGES

33
Q

price floor

A

MIN price set ABOVE the equilibrium price, which causes a SURPLUS

34
Q

elastic

A

greater than 1, which price increases, total revenue decreases

35
Q

inelasic

A

less than 1, which prices increase, total revenue increases

36
Q

Porters 5 Forces

A

-Barriers to entry
-market competitiveness (intensity of competition)
-Existence of substitute products
-bargaining power of customers
-bargaining power of suppliers

37
Q

Barrier to Entry - Porter 5 Forces

A

-types of barriers to entry
-When new companies will attempt to enter

38
Q

Market Competitiveness

A

MOST SIGNIFICANT
-ability to rival firms to respond to change
-advertising of rival firms
-research and development of rival firms
-alliance of rival firms and suppliers
-other factors increasing competition

39
Q

bargaining power of customers

A

-large volume of firms business (high buyer concentration)
-availability of information
-buyers low cost of switching products
-high number of alternative suppliers

40
Q

bargaining power of suppliers

A

-firm unable to change suppliers
-reputation of supplier and demands for its goods

41
Q

Competitive Strategies

A

general direction - being able to attain some sort of competitive advantage while holding customer loyalty and having value for the customer - firm is determined by the value the firm offers to its customers minus cost of creating value

42
Q

Basic forms of competitive strategy

A

Cost Leadership and Differentiation advantage

43
Q

Cost Leadership

A

-part of competitive strategy
-build market share
-match the price of rivals
-inferior goods

44
Q

Differentiation advantage

A

-part of competitive strategy
-build market share
-increase price
-superior goods

45
Q

Horizontal Combination

A

economies of scale, decrease costs, increase profits,
-companies of the same industry the produce the same goods join together

46
Q

Vertical Combination

A

Raw materials to manufacturers to distributors
-combination of companies at DIFFERENT stages of the production process, can assure the supply of raw materials(backward integration) or provide a stable market for products sold(forward integration)

47
Q

Circular Combinations

A

3C’s - Centralized Management, Cost decrease, circular combo
-different businesses units with remote connections come together under single management

48
Q

Diagonal Combinations

A

SHIPPING
-engages in an activity integrates with another company that provides ancillary support for that primary activity

BEC Exam (7 decks)

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