Economics P2

Question 1

market

Answer 1

mechanism that brings together the buyers and sellers of a good r service

Question 2

market conduct

Answer 2

things done by firms in their capacity as buyers and sellers regarding their objectives, competition methods and inter-firm conduct

Question 3

substitutes

Answer 3

goods/services that can be used in place of one another because they satisfy the same consumer need

Question 4

complements

Answer 4

goods or services that are used together to provide maximum utility

Question 5

market structure

Answer 5

refers to how industries are classified based on the nature of competition between businesses

Question 6

normal profit

Answer 6

minimum earnings required to prevent the entrepreneur from closing the business and using his factors of production elsewhere (TR=EC + IC)

Question 7

how do you determine the market supply curve?

Answer 7

horizontally add up the quantity supplied at a particular price by individual businesses

Question 8

absolute price

Answer 8

A monetary value that will purchase a definite quantity of a good or service

Question 9

economies vs diseconomies of scale

Answer 9

Economies of scale exist when long run average cost decreases as output increases, diseconomies of scale occur when long run average cost increases as output increases

Question 10

barriers to entry

Answer 10

anything which prevents a business from entering a market and competing with other businesses such as high costs

Question 11

characteristics of utility

Answer 11

Form: the value that an item has based on the form that it takes. Individual car parts have value, but when someone assembles them into a functional vehicle, the utility the car offers is higher

Place utility is the value that a product offers based on where the product is. E.g a swimming costume is useful when at the beach but is far less useful when you are in the snow or when it’s in your cupboard

Question 12

why is MR lower than AR in an imperfect market?

Answer 12

The % increase in quantity demanded is greater than the % decrease in price at all points

Question 13

monopoly

Answer 13

A market structure characterized by a single seller, selling a unique product in the market in which the monopolist faces no competition and no substitutes

Question 14

oligopoly

Answer 14

a market structure that consists of a small number of sellers, who together have substantial influence over a certain industry

Question 15

collusion

Answer 15

agreement between rivals to set prices and quantities to gain an unfair market advantage

Question 16

non price competition

Answer 16

firms use non-price factors such as branding or customer service to increase demand for their products

Question 17

differentiated product

Answer 17

a product that consumers see as distinctive in some way (the unique qualities of a specific brand)

Question 18

productive efficiency vs allocative efficiency

Answer 18

Productive efficiency is the full utilization of factors of production to produce goods at the minimum cost.

Allocative efficiency is the ability to fulfill consumer demand by distributing goods and services competently

Question 19

PED

Answer 19

the measure of the responsiveness of demand for a product to a change in price

Question 20

short run

Answer 20

period of time in which a business is faced with at least one fixed input

Question 21

long run

Answer 21

a period of time where all factors of production and costs are variable

Question 22

monopolistic competition

Answer 22

many sellers who produce differentiated products