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Semestertest 2 > Economics > Flashcards

Economics Flashcards

1
Q

Perfect competition

A

e.g. Farmers Market
Many small firms
Homogeneous products
Firms are price takers
Set by forces of demand and supply
Free entry and exit
Perfect information

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2
Q

Monopolistic competition

A

Many firms
Limited market power
Differentiated products
Relatively free entry and exit
Imperfect knowledge -> good for advertising

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3
Q

Oligopoly

A

Few large firms
Interdependent decision-making
Quite high market power
Significant barriers to entry

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4
Q

Monopoly

A

One single firm
Unique product
Nearly impossible to enter market
Not beneficial for consumers

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5
Q

Most common market structure

A

Monopolistic competition
e.g. clothing, restaurants
Combines competition & differentiation
Maintains a certain amount of market power

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6
Q

Best market structure for consumers

A

Perfect competition
->low prices
->firms need to be efficient
-> consumer sovereignty
More realistic: Monopolistic competition

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7
Q

Best market structure for long-term profitability

A

Oligopoly
->market power
->barriers to entry
->economies of scale as a large firm
->potential to collude

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8
Q

Formal collusion

A

Open negotiation & agreement
Illegal in most countries
Price fixing cartels
Anti-competitive behaviour

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9
Q

Tacit collusion

A

Indirect observation & mimicking
Avoiding direct communication
More difficult to prove, regulate and spot
Often follow price-leader in an Oligopoly

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10
Q

Collusions

A

Explicit agreements to coordinate setting prices, limit production and divide markets

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11
Q

Product differentiation definition

A

A marketing strategy that businesses use to distinguish their products from those of competitors in the eyes of consumers (often present in Oligopolies)

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12
Q

Differentiation strategies

A

Brand names
Packaging
Innovation
Point of sale
Publicity through sponsorship with celebrities
Sales promotion through discounts, samples, buy one get one free & coupons
Special features
Free delivery and after sales service
Loyalty programs (Emirates)
->goal is to make demand less elastic

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13
Q

Price leadership

A

Largest seller sets prices, others follow

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14
Q

Concentration strategy definition

A

A business approach where a company focuses its efforts on a single or limited number of markets or a geographic area.

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15
Q

Concentration strategy goals

A

Achieving a strong market position - expertise
Competitive advantage by having better understanding
Customer loyalty by providing superior products
Increase own market share, take market share from competitors

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16
Q

3 types of concentration strategies

A

Market penetration: gain additional share
Market development: sell existing product in new markets
Product development: create new product in existing markets

17
Q

What does the circular flow demonstrate?

A

Consists of consumption, production and income
How money moves through society:
From producers to workers as wages
Back to producers as payment for products
An economy is an endless circular flow of money

18
Q

What does GDP consist of?

A

GDP = C + I + G + (X-M)
C = personal consumption expenditure
I = gross investment expenditure
G = government purchases
Net Exports (X-M)
X = Exports
M = Imports

19
Q

Injection

A

Money coming into the flow e.g.
- aid from another country
- exports

20
Q

Leakage

A

Money leaving the circular flow e.g.
- imports
- money put in a bank account/savings
- taxation

21
Q

Multiplier effect definition

A

The amount of increase in GDP that results from an injection

22
Q

Multiplier calculation

A

Multiplier = 1/1-MPC
If:
injections rise by 1 mil & GDP by 2 mil
Then:
Multiplier = 2

23
Q

Marginal propensity definition

A

Likelihood to spend money a certain way when getting extra money

“to consume “to save

24
Q

What is the marginal propensity influenced by?

A

Income
Economic stability
Interest rates
Social security/welfare systems (pensions, unemployment benefits etc.)
Demographics - age (save for retirement / spend for housing or education)

25
Q

Demand-side policies:

A

Expansionary fiscal policy:
- lowering taxes
- increasing government spending
Expansionary Monetary policiy:
- decreasing interest rates
- increasing money supply

26
Q

Supply-side policies:

A

Focused on aligning (matching) Labor supply with job opportunities
- increase education & training
- decrease unemployment benefits/ increase requirements
- reduce or eliminate minimum wage requirements
- improve mobility of workers through programs

27
Q

Frictional Unemployment

A

Short-term
When people are in between jobs or are waiting for their first one
Not generally considered negative
Next job will most likely be more productive/contributes more to the economy

28
Q

Frictional Unemployment solutions

A

Reduce unemployment benefits so job seekers don’t get too picky
Improved flow of information from potential employers to unemployed

29
Q

Seasonal Unemployment

A

The demand for certain workers falling at certain times of the year
-> find an off season job

30
Q

Determinants of potential GDP

A

Growth in the supply of Labor
Growth in Labor productivity

31
Q

Real wage unemployment

A

SL>DL
Wages being higher than the equilibrium price point e.g. minimum wage

32
Q

Natural Unemployment rate

A

Combination of frictional & structural unemployment

33
Q

Cyclical Unemployment

A

Associated with the cyclical downturns in an economy (recession)
Happens because firms cut back on production: AD & DL falls

34
Q

Structural Unemployment

A

Permanent fall in the quantity demanded for a certain type of Labor
Lack of necessary skills, technology, globalisation, consumer taste e.g. coal mines

35
Q

Structural Unemployment solutions

A

Training, job centres, tax brakes to encourage moving
-> high opportunity cost
-> only a long term solution
Lower unemployment benefits
More Labor market flexibility
-> inequities in the economy, low living standards

Semestertest 2 (2 decks)

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