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Business Environment & Concepts > Economics - Roger CPA > Flashcards

Economics - Roger CPA Flashcards

0
Q

Total Revenue

A

Unit Price / Unit

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1
Q

Cross-Elasticity of Demand

A
  • measures change in quantity demanded of good to change in price of another good
  • determine if 2 goods are substitutes, complement, unrelated

(% change quantity demanded product X) / (% change price product Y)

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2
Q

Price Elasticity of Demand (Ed) (Elasticity of Demand)

A
  • measures how responsive quantity demanded (of good of service) is to a change in price
  • (% change quantity demanded) / (% change price)

“Arc method” (midpoint or average) between before and after a change)

[(change quantity demanded) / average quantity demanded)] / [(change price) / (average price)]

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3
Q

Ed theory

A

Ed > 1 = Elastic
Ed < 1 = Inelastic
Ed = 1 = “Unit Elastic” or Unitary

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4
Q

Income Elasticity of demand

A
  • measures effect of changes in (consumer) income on changes in quantity demanded of product

(% percent change quantity demanded) / (Percent change Income)

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5
Q

Normal Good vs Inferior Good

A

Normal Good: positive #; Income increases, quantity demanded increase

Inferior Good: negative #; Income increases, quantity demanded decrease

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6
Q

Substitutes vs Complements vs Unrelated

A

Substitutes: direct relationship (positive number); ex) butter and margarine

Complements: inverse relationship (negative number); ex) chips and salsa

Unrelated: Zero; products not related

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7
Q

Demand (Demand Curve)

A
  • Slopes down
  • Inverse Relationship between price and quantity of a product or service that group of consumers are willing to buy at particular time
  • Price increases, demand decreases
  • Price decreases, demand increases
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8
Q

Demand curve shifts

A
  • changes in relevant factors other than change in price
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9
Q

Describe changes in demand curve where quantity demanded becomes larger for each and every price

A

“Demand curve shifted upward”, outward, right, demand increased

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10
Q

Describe changes in demand curve where quantity demanded becomes smaller for each and every price

A

“Demand curve shifted downward”, inward, left, demand decreased

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12
Q

Direct Relationship with demand curve

A
  • demand curve shift upward, increase
  • price of substitute good
  • expectations of price changes
  • income (normal goods)
  • extent of market
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12
Q

Expectations of price changes

A

Consumers buy now if price increase in future

Ex) tax increase next year so product demand is high this year

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13
Q

Price of substitute good

A

When product A acceptable alternative product B, increase in price of Product A will make Product B more attractive

  • ex) hamburger price increase, hot dog demand increase
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14
Q

Income (Normal goods)

A

For any goods, when income (wealth) increase, demand increases

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15
Q

Extent of the Market

A

New consumers may increase demand, therefore increasing size of the market

Ex) baby boom will increase baby food

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16
Q

Inverse Relationship

A
  • demand curve shifts downward (decrease)
  • The price of a complement good
  • Income (for inferior goods)
  • Consumer boycotts
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17
Q

The price of a complement good

A

When products are usually used together, an increase in price of one of the goods, decreases demand of the other

Ex) increase price of chips,
Decrease demand of salsa

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18
Q

Income (for inferior goods)

A

For some goods (e.g. Used cars), when income increase (wealth), demand decreases as consumers shift their spending to other goods (e.g. New cars)

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19
Q

Consumer boycotts

A

Organized boycott will, if effective, temporarily decrease the demand for a product.

Ex) members of unions commonly refuse to buy from businesses that are involved in labor disputes

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20
Q

Changes in consumer tastes (indeterminate relationship)

A

Affect demand but whether demand increases/decreases as a result depends on whether change in tastes favors/disfavors specific product

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21
Q

sUPply (sUPpply Curve)

A
  • Slopes up
  • Shows direct relationship between the price of a product or service and the quantity that a group of producers and/or sellers are willing to supply at particular time (i.e. quantity supply)

ex) The price of product increases (e.g. from 10 to 20), quantity supplied by sellers increases (e.g. from 30 to 50)

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22
Q

Direct Relationship with Supply Curve

A
  • Increases in that factor cause supply curve to shift outward (increase)

Ex)

  • Number of producers
  • Government subsidies
  • Price expectations
  • Reductions in costs of production and technical advances
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23
Q

Number of producers

A
  • more producers normally increase the quantity supplied of a product at a given price
    ex) entry by foreign suppliers into the U.S. auto market increases the supply of cars in the U.S.
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24
Q

Government subsidies

A

Additional funding permits producers to purchase more inputs and, thus, increase quantity supplied at any given price

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25
Q

Price expectations

A

If producers expect higher prices, producers will increase their quantity supplied at any given price

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26
Q

Reductions in costs of production and technological advances

A

Reductions in costs of production mean producers will increase their quantity supplied at any given price

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27
Q

Inverse Relationship with supply curve

A
  • Increases in that factor cause the supply curve to shift inward (decrease)

ex)

  • Increases in production costs (e.g. production taxes)
  • Prices of other products
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28
Q

Increases in production costs (e.g. production taxes)

A
  • If producers’ costs increase, producers will decrease their quantity supplied at a given price
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29
Q

Prices of other products

A

If producers may produce both product A and B, and producing A becomes more profitable, producers will decrease their quantity supplied of B at any given price.

30
Q

Price Elasticity of Supply (Es) (Elasticity of Supply)

A
  • Measure of how sensitive quantity supplied of a good or service to a change in price or cost

(% change quantity supplied) / (% change change price)

31
Q

Surpluses

A
  • Economic rents
  • excess payments for factors (labor, natural resources, capital, and entrepreneurship) when used most productively over their best alternative use (opportunity cost)
32
Q

Opportunity Cost

A

benefit given up from not using the resource for another purpose.

33
Q

Economic Profit

A
  • Excess of the profits are receiving over the normal profit rate in the economy
  • Usually result in more suppliers entering the market, and economic losses will usually result in suppliers existing the market
34
Q

Market Equilibrium

A
  • Quantity demanded = Quantity Supplied
35
Q

Some Government actions that affect Equilibrium

A
  • Government impose price ceiling (setting max. legal price at which a product or service may be sold) below equilibrium, the quantity demanded will exceed quantity supplied, resulting in shortage prices
  • If government imposes price floor (setting minimum legal price at which product or service may be sold) above equilibrium, the quantity supplied will exceed quantity demanded resulting in unpurchased surpluses of goods or services
36
Q

Law of Diminishing Marginal Utility

A

the more a consumer consumes of a particular product, the less satisfying will be the next unit of that product

37
Q

Indifference Curve

A

Represents the combination of quantities of each product that yield a certain total utility

38
Q

Personal Disposable Income

A

Available income of a consumer after subtracting mandatory payment of taxes(or adding receipt of government benefits if applicable)

  • Consumers can either spend or save personal disposable income
39
Q

Marginal Propensity to Consume (MPC)

A
  • percentage of the next dollar of income that the consumer would be expected to spend

(Change in savings) / (Change in Disposable Income)

40
Q

Marginal Propensity to Save (MPS)

A
  • Percentage of the next dollar that the consumer would be expected to save

[Change in consumption (Spending)] / (Change in disposable income)

41
Q

Fixed Costs (FC)

A

Costs that won’t change even when there is a change in the level of production

42
Q

Average Fixed Costs (AFC)

A

(Total fixed costs) / (# of Units Produced)

43
Q

Variable Costs (VC)

A

Costs that rise as production rises

44
Q

Average Variable Costs (AVC)

A

(Total variable costs) / (# of Units Produced)

45
Q

Total Costs (TC)

A

FC + VC

46
Q

Average Total Costs (ATC)

A

(Total Costs) / (# of Units Produced)

47
Q

Marginal Costs (MC)

A
  • Increase in costs that result from producing one extra unit
  • Variable costs are only relevant
48
Q

Marginal Revenue (MR)

A

Change in Total Revenue associated with the sale of one more unit of output

49
Q

Marginal Revenue Product

A

Increase in total revenue received by the additional of one additional unit or an input or resource (e.g. one more worker)

50
Q

Returns to Scale

A
  • Increases in units produced (output) that result from increases in production costs (i.e. costs of inputs)

(% increase output) / (% increase input)

51
Q

Increasing returns to scale

A
  • Output increases by a greater proportion > 1.0
  • Range of output for which increase in the use of inputs yield more than proportionate increases in output
  • Increasing output involves falling per unit costs
52
Q

Economies of Scale

A

Increased efficiencies from producing more units of a product

53
Q

Constant returns to scale

A
  • Output increases in same proportion = 1.0
  • Range of output for which increases in the use of inputs yield proportionate increases in output
  • Increasing output involves constant per unit costs
54
Q

Decreasing returns to scale

A
  • Output increases by a smaller proportion < 1.0
  • Range of output for which increases in the use of inputs yield less than proportionate increases in output
  • Increasing output involves rising per unit costs
  • There is only one producer
  • No close substitute are available
  • There is blocked entry (patent or government franchise-public utility)
  • The firm’s demand curve is substantially downward sloping (almost vertical)
55
Q

Pure monopoly

A

Only one firm that sells a product or service for which there are no close substitute

56
Q

Predatory Pricing

A

charging temporarily low prices to drive their competitors out of existence , only to increase their prices as monopolists, once they have eliminated their competitors

57
Q

The Sherman Act (1890)

A

prohibited price fixing, boycotts, market division, and restricted resale agreements among suppliers

58
Q

The Clayton Act (1914)

A

Prohibited stock mergers that reduce competition, price discrimination, and common directorships among competing firms

59
Q

The Robinson-Patman Act (1936)

A

Prohibited discounts to large purchasers not based on cost differentials

60
Q

The Cellar-Kefauver Act (1950)

A

prohibits acquisition of the assets of a competitor if it would reduce competition

61
Q

Monopolistic Competition

A
  • Large number of firms produce heterogeneous products and engage in a great deal of non-price competition
  • It includes a large number of sellers
  • Firms sell heterogeneous products
  • There is lots of non-price competition(advertising, products with slightly differing features, actual quality differences)
  • It is relatively easy to enters and exit to market
  • Each individual firm faces a demand curve that is slightly or somewhat downward sloping
62
Q

Oligopoly (Oligopolistic Competition)

A
  • A small number of large sellers
  • Barriers to entry (cost or patents)
  • Non-price competition exists
  • Rival actions are observed
  • The firm’s Demand curve is Kinked
63
Q

Price War

A

Company’s decision to gain market share by lowering its prices may result in other companies matching its pricing

64
Q

Collusive Pricing

A

Price Fixing

65
Q

Cartels

A

Forbidding formal quantity agreements among competitors

66
Q

Game Theory

A

Actions by one firm are likely to affect the decisions of other firms

67
Q

Competitor Analysis

A

Analyzing to understand and predict the behavior of a major competitor

68
Q

Target Market

A

Determining who their customers are and why they are purchasing their products

69
Q

Business Strategies

A

Managers commonly engage in formal analyses of their strengths, weaknesses, opportunities, and threats (SWOT analysis)

70
Q

Mission Statement

A

Outlines the long term purposes of an organization

71
Q

Goal and Objectives

A

Goals - General terms

Objectives - specific targets

72
Q

Increase in output (equilibrium GDP)

A

(Change in spending) / (Marginal Propensity to Save)

Business Environment & Concepts (10 decks)

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