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Senior Year > Economics - Unit 3 > Flashcards

Economics - Unit 3 Flashcards

0
Q

Shirking

A

The behavior of a worker who is putting forth less than the agreed-to effort.

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1
Q

Business firm

A

An organization that uses resources to produce goods and services that are sold to consumers, other firms, or the government.

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2
Q

Sole proprietorship

A

A business that is owned by one individual who makes all business decisions, receives all the profits or incurs all the losses of the firm, and is legally responsible for the debts of the firm

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3
Q

Partnership

A

A business owned by two or more owners, called partners, who share profits and are legally responsible for debts

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4
Q

Corporation

A

A legal entity that can conduct business in its own name in the same way that an individual does.

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5
Q

Stockholder

A

A person who owns shares of stock in a corporation

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6
Q

Asset

A

Anything of value to which the firm has a legal claim

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7
Q

Limited liability

A

A condition in which an owner of a business firm can lose only the amount he or she has invested (in the firm)

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8
Q

Board of directors

A

An important decision making body in a corporation. It decides corporate policies and goals, among other things.

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9
Q

Dividends

A

Shares of the corporation profits distributed to stockholders

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10
Q

Bonds

A

Statement of debt issued by a corporation

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11
Q

Franchise

A

A contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods in exchange for certain payments and requirements.

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12
Q

Franchiser

A

The entity that offers a franchise

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13
Q

Franchisee

A

The person or group that buys a franchise

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14
Q

Fixed cost

A

A coat, or expense, that is the same no matter how many units of a good are produced

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15
Q

Variable cost

A

A cost, or expense, that changes with the number of units of a good produced

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16
Q

Total cost

A

The sum of fixed costs plus variable costs

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17
Q

Average total cost

A

The total cost divided by the quantity of output

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18
Q

Marginal cost

A

The cost of producing an addition unit of a good; the change in total cost that results from producing an addition unit of output

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19
Q

Marginal revenue

A

The revenue from selling an additional unit of a good; the Change in total revenue that results from selling an additional unit of output

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20
Q

Law of diminishing marginal returns

A

A law that states that if additional units of one resource are added to another resource in fixed supply, eventually the additional output will decrease

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21
Q

Why does a business need a boss?

A

To efficiently coordinate and direct the activities of others in the organization

22
Q

Law of diminishing marginal productivity

A

If a factor of production is adddd to another factor of production in fixed supply eventually total output will peak and thereafter decrease

23
Q

Advantages (2) and disadvantages (2) of sole proprietorships

A

Advantages:

  • all profits belong to one person
  • complete control of the enterprise

Disadvantages:

  • all responsibility to manage business
  • unlimited liability
24
Q

Advantages (1) and disadvantages (1) of a franchise

A

Advantage:
- ready made product/business

Disadvantage:
- profits and decision-making shared with the corporation

25
Q

Advantages (1) and disadvantages (1) of a partnership

A

Advantages:
- specialization possible

Disadvantages:
- potentially difficult decision-making process

26
Q

Advantages (3) and disadvantages (1) of a corporation

A

Advantages:

  • limited liability
  • perpetual existence
  • large capitalization possible

Disadvantages:
- role of “corporate citizenship”

27
Q

Examples of corporations (3)

A

Hewlett-Packard

Intel

Walt-Disney

28
Q

The Nader view

A

Ralph Nader believes that businesses have ethnic and social responsibilities

29
Q

the Friedman view

A

Milton Friedman believes in increasing profits so long as everything he does is within the rules of the game - open and free competition without deception or fraud

30
Q

Asymmetric information

A

Exists when one party has information that another party to a transaction doesn’t have

31
Q

Where will firms relocate?

A

Similar firms have an incentive to locate near each other. They do this for the competition of customers.

32
Q

General partners

A

Partners who are responsible for the management of the firm

  • unlimited liability
33
Q

Limited partner

A

Restricted to the amount he or she has invested in the firm

  • doesn’t usually participate in the management of the firm or enter contracts on behalf of the firm
34
Q

Perfect competition characteristics (4) and issues (1)

A

Characteristics:

  • has many buyers and sellers
  • sells identical products
  • no asymmetrical information
  • easy entry in and out of the market

Issues:
- sellers are price takers

35
Q

Price takers

A

A seller that can sell all its output at the equilibrium price but can sell none of its output at any other price.

36
Q

Examples of perfect competition (3)

A

*agriculture products (wheat, soybean, coffee, oranges, maple syrup)

Stocks or bonds

Gasoline

37
Q

Monopolistic competition characteristics (3) and issues (2)

A

Characteristics:

  • many buyers and sellers
  • sells different or unique products
  • there are few if any barriers to enter or exit the market

Issues:

  • sellers are price makers (price searcher)
  • sellers will use advertising to differentiate their products
38
Q

Examples of monopolistic competition (5)

A

Athletic shoes (Nike, Adidas, reebok)

Fast food (McDonald’s, Burger King, Wendy’s)

Grocery stores (cub, rainbow, piggly wiggly)

Smartphones (Samsung, HTC, Apple, Nokia, etc)

Car producers (GM, Chrysler, Ford…)

39
Q

Price maker (price searcher)

A

A seller that can sell some of its output at various prices

40
Q

Oligopoly characteristics (3) and issues (1)

A

Characteristics:

  • has a few sellers
  • firms sell either identical or similar products
  • many barriers to exit the market

Issues:
- sellers may try to collude; if seller collides, they can act as a cartel

41
Q

Collude

A

Conspire to fix prices

42
Q

Cartel

A

A group with monopoly power

  • cartels don’t last long because there is too much incentive to cheat
43
Q

Examples of an oligopoly? (5)

A

OPEC (Saudi Arabia, Libya, Venezuela)

Airline industry (American, United, Delta)

Broadcast tv (CBS, NBC, ABC, FOX)

Soda producers (coca cola, Pepsi)

Candy producers (Hershey’s, nestled, Mars)

44
Q

Monopoly characteristics (3) and issues (2)

A

Characteristics:

  • only has one seller
  • has no close substitutes
  • many barriers to enter or exit market

Issues:

  • price makers (they choose price)
  • Sherman antitrust act
45
Q

Sherman antitrust act

A

Outlawed monopolies in the U.S. in 1890

46
Q

Government monopoly

A

Government sanctioned monopolies

  • patent
  • copyright
47
Q

Patent

A

Format of intellectual property granted to an inventor by government for a stipulated time period

48
Q

Copyright

A

Form of intellectual property granted to an author or artist by government for a stipulated time period

49
Q

Natural monopoly

A

A business that can produce at an unusually low cost

  • In many cases, monopolies have exclusive ownership of a resource
50
Q

Output =

A

When MC (marginal cost) = MR (marginal revenue)

  • also when profits are maximized!
51
Q

Profit (or loss) =

A

TR (total revenue) - TC (total cost)

52
Q

MC =

A

TC₂-TC₁ = MC

53
Q

TR =

A

MR x Q

Senior Year (31 decks)

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