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BEC > ECONOMICS > Flashcards

ECONOMICS Flashcards

1
Q

Define Economics

A

The study of the allocation of scarce resources among alternative uses.
From a business perspective, economics is concerned with studying the production, distribution and consumption of goods and services, generally so as to maximize desired outcomes.

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2
Q

Define MicroEconomics

A

Studies the economic activities of distinct decision-making entities, including individuals, households and business firms.

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3
Q

Define MacroEconomics

A

Studies the economic activities and outcomes of a group of entities taken together, typically of an entire nation or major sectors of a national economy.

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4
Q

Define International Economics

A

Studies economic activities that occur between nations and outcomes that result from these activities.

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5
Q

What is a command economic system?

A

A system in which the government largely determines the production, distribution and consumption of goods and services. Ex. Communism and Socialism

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6
Q

What is a Market (Free-Enterprise) economic system?

A

A system in which individuals, businesses and other distinct entities determine production, distribution and consumption in an open (free) market.
Ex. Capitalism

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7
Q

Distinguish between a change in quantity demanded and a change in demand.

A

A change in quantity demanded is movement along a given demand curve as a result of a change in price obly. A change in demand is a shift in a demand curve as a result of changes in variables other than price.

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8
Q

Define demand

A

Desire, willingness, and ability to acquire a commodity (good or service).

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9
Q

What are the factors that change market demand?

A

Size of market, income or wealth of market participants, preferences of market participants, change in prices of other goods and services.

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10
Q

Define Supply

A

The quantity of a commodity (good or service) that will be provided at alternative prices during a specified time.

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11
Q

What are four variables that change aggregate supply?

A

Number of providers, Costs of inputs, Government taxation or subsidization, Technological advances.

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12
Q

Formula for Elasticity of Demand

A

Percentage change in quantity demanded divided by Percentage change in price

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13
Q

How does the elasticity of demand outcome determine total revenue.

A

If elastic and price increases, then TR decreases. If elastic and price decreases, then TR increases.
If inelastic and price increases, then TR increases. If inelastic and price decreases, then TR decreases.

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14
Q

Define marginal utility

A

The utility derived from each (additional ) marginal unit (i.e., from the last unit acquired).

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15
Q

Define the law of diminishing marginal utility

A

Decreasing utility (satisfaction) is derived from each additional (marginal) unit of a commodity acquired.

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16
Q

Describe economies of scale (also called increasing return to scale).

A

The long-run average cost curve is decreasing reflecting that the quantity of output is increasing in greater proportion than the increase in inputs, largely due to specialization of labor and equipment.

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17
Q

Define the law of diminishing returns.

A

The short-run economic concept under which the quantity of variable inputs begins to overwhelm the fixed factors, resulting in inefficiencies and diminishing returns on marginal units of variable inputs.

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18
Q

What are the characteristics of a perfectly competitive market?

A

Large number of independent buyers and sellers, all firms sell a homogeneous product or service, each selling firm is too small to separately affect the price of the commodity, buyers and sellers have perfect information, government does not set prices. Market entry and exit are easy.

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19
Q

How are long-run profits determined for a firm in perfect competition?

A

No long-run profits are possible in a perfectly competitive market. If profits are made in the short run, more firms will enter the market and increase supply, thus decreasing market price until all firms just break even.

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20
Q

What are the market characteristics of a perfect Monopoly.

A

A single seller, a commodity for which there are no close substitutes, restricted entry into the market.

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21
Q

A monopoly may exist as a result of…

A

Control of raw material inputs or processes (patent), government action, increasing returns to scale (aka natural monopoly).

22
Q

In the long run, how can a monopoly firm increase its profits?

A

Reduce costs by changing the size of its operations. Increase demand through advertising, promotion, and the like.

23
Q

What is a natural monopoly?

A

A natural monopoly results from conditions in which there are increasing returns to scale, such that a single firm can produce at a lower cost than two or more firms. Typically, fixed costs are extremely high, making it inefficient for a second firm to enter the market.

24
Q

What are the market characteristics of the market structure monopolistic competition?

A

A large number of sellers, firms sell a differentiated product or service for which there are close substitutes, firms can easily enter or leave the market.

25
Q

What are the short-run and long-run Analysis of the market structure monopolistic competition

A

While a firm in monopolistic competition can make an economic profit in the short run, it cannot do so in the long run because new firms will enter the market and/or consumers will switch to substitute products

26
Q

What are the market characteristics of the market structure oligopoly?

A

Few sellers, Firms sell either homogeneous or differentiated products, Restricted entry into the market.

27
Q

What is overt collusion? What is tacit Collusion?

A

Overt collusion is when firms ( a cartel) conspire to set output, price or profit. (illegal).
Tacit collusion occurs when the firms tend to follow price changes initiated by the price leader in the market (not illegal).

28
Q

What are the short-run and long-run Analysis of the market structure oligopoly?

A

In the short run, firms can earn a profit depending on the relationship between price and average cost. In the long run, if a firm is incurring loses, that will continue, thus they need to cease. However, if they are making profits, they can continue to do so because entry into the market is restricted.

29
Q

What is Macroeconomics?

A

Macroeconomics is concerned with the economic activities and outcomes of an entire economy, typically an entire nation or region.

30
Q

Define leakages and injections.

A

Leakages consists of the amounts of individual income that are not spent on domestic consumption (Taxes, savings, and imports). Injections are the sources of amounts added to domestic production that do not result from domestic consumption expenditures (government spending, investment spending, and amounts received for exports).

31
Q

What does nominal gross domestic product measure?

A

Nominal GDP measures the total output of final goods and services produced for Exchange in the domestic market during a period.

32
Q

What does gross national product measure?

A

GNP measures the total output of all goods and services produced worldwide using US resources. Includes goods and services produced in foreign countries by US and entities

33
Q

What is potential GDP?

A

Potential GDP is a measure of the maximum amount of goods and services an economy can produce at a given time, assuming available technology and full utilization of available economic resources, including labor.

34
Q

Define aggregate supply

A

Total output of goods and services at different price levels at the macroeconomic level.

35
Q

Define aggregate demand

A

Total spending of individuals, businesses, governmental entities, and net foreign spending on goods and services at different prices at the macroeconomic level

36
Q

Define business Cycles

A

Cumulative fluctuations in aggregate real GDP that last at least 2 years

37
Q

Define monetary policy

A

Managing the money supply to achieve National Economic objectives including economic growth and price level stability. The FED exercises monetary policy through the Reserve requirement, open market operations, discount rate.

38
Q

Define fiscal policy government actions

A

Increase / decrease government spending. Increase / decrease taxes.

39
Q

Define comparative advantage (international economics).

A

Comparative advantage is the ability of one economic entity (nation) to produce a good or service at a lower opportunity cost than another entity (nation). To maximize output, entities should specialize in the goods or services they produce at the least opportunity cost and trade with other entities that do the same but in different areas.

40
Q

Define international economics.

A

Study of economic activity that occurs across national boundaries.

41
Q

Major reason for international economic activity.

A

Increase markets for sale of goods and services. Obtain commodities not otherwise available, or available only in limited supply. Obtain commodities at a lower cost than is available in home country.

42
Q

Define absolute advantage.

A

Ability of a country, business, or individual to produce a good or service more efficiently (with fewer input resources) than another entity.

43
Q

Identify and describe balance of payment accounts.

A

Current Account: Imports and Exports.
Capital Account: Investments and Loans.
Financial Account: Assets.

44
Q

What are some sociopolitical issues associated with international trade?

A

Domestic Unemployment, loss of manufacturing capabilities, reduction of industries essential to national defense, and lack of domestic protection for start-up industries.

45
Q

Define currency exchange rate risk

A

The risk of loss or other unfavorable outcome that results from changes in exchange rates between currencies

46
Q

What are the three types of currency exchange risks?

A

Transaction risk, translation risk, and economic risk

47
Q

Define transaction risk

A

The possible unfavorable impact of changes in currency exchange rates on transactions that are denominated in a foreign currency

48
Q

Define translation risk

A

The possible unfavorable impact of changes in currency exchange rates on financial statements of foreign operations that are converted from a foreign currency to the domestic currency

49
Q

Define economic risk

A

The possibility that changes in exchange rates will alter value of future revenues and costs

50
Q

Describe transfer pricing

A

Transfer pricing is the determination of the amounts at which transactions between Affiliated entities will be recorded. The issue of transfer pricing has special significance when the Affiliated entities are located in different countries.

51
Q

Define strategic planning.

A

The sequence of interrelated procedures for determining an entity’s long-term goals and identifying the best approaches for achieving those goals.

52
Q

Explain Porter’s Five Forces Model (Industry Analysis).

A 
Considers five factors:
Threat of new entrants
Threat of substitute goods/services
Bargaining power of buyers
Bargaining power of suppliers
Intensity of rivalry

BEC (8 decks)

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