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econ 101 > final!!!!! > Flashcards

final!!!!! Flashcards

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1
Q

if deflation is occuring, NGDP is

A

less than RGDP and the GDP deflator is less than 100

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2
Q

total expenditure by consumers does change with a change in price. but it is dependent on elasticity.

when there is a unit elastic good total expenditure….
when there is inelastic demand……
when there is elastic demand…….

A

1) no change in expenditure
2) total expenditure increases when the price increases
3) total expenditure decreases when the price increases

this is similar to the idea: raise prices if demand is inelastic. means it is worthwhile to raise price even if people buy less

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3
Q

when the fed raises interest rates

A

the dollar appreciates

more people want to put their money into US assets (banks) which strengthens our currency

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4
Q

while transfer payments themselves dont count in GDP, ……. does count in GDP

A

spending of a transfer payment

ex) spending of SNAP

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5
Q

when there is a downturn in the economy, the fed could …. the FFR to stimulate the economy

A

lower

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6
Q

when the fed issues treasury bills, this raises the interest rate. why?

A

this is like the fed selling a bond. they are getting paid for the bond, leading to a decrease in the circulating money supply.

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7
Q

FRED data graphs have shaded regions that represent

A

recessions

this corresponds to low output (RGDP) and high unemployment

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8
Q

market power

A

extent to which a seller can charge a higher price without losing sales

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9
Q

perfect competition

A

1) all firms sell identical good
2) there are many buyers and sellers, who are relatively small

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10
Q

monopoly

A

only seller in the market

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11
Q

oligopoly

A

market dominated by a handful of sellers

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12
Q

monopolistic competition

A

market w many small businesses competing, each selling differentiated products

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13
Q

fewer competitors means your product will be

A

more unique

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14
Q

most businesses are

A

imperfectly competitive

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15
Q

imperfect competition

A

few competitors, somewhat differentiated product

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16
Q

increase in competitors = …….. in market power

A

decrease

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17
Q

increase in market power = ……. in independent pricing strategy

A

increase

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18
Q

firm demand curve

A

shows how Qd changes in response to a firm changing its price

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19
Q

perfect comp = ……. demand curve

A

perfectly elastic

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20
Q

monopoly demand curve is

A

market demand curve

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21
Q

marginal revenue

A

addition to total revenue from selling one more unit

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22
Q

marginal revenue reflects the

A

output effect - discount effect

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23
Q

MR =

A

P- (change in P*Q)

p-(price cut*q that get the price cut)

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24
Q

MR characteristics

A

lies below demand curve
declines faster than demand curve

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25
Q

discount effect on a graph

A

difference between firm demand curve and MR

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26
Q

golden rule of profit maximization

A

produce until MR=MC

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27
Q

what does market power lead to

A

1) higher prices
2) smaller quantity (inefficient)
3) increased economic profit
4) business survival at inefficiently high costs

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28
Q

market power is bad because it causes

A

underproduction

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29
Q

competition leads to

A

decreased Price and increased Quantity

30
Q

competition policy

A

ensures markets remain competitive

anti trust policy

31
Q

anti collusion

A

limits agreements between rivals that state they will not compete against eachother

32
Q

merger laws

A

prevents competing businesses from combining to consolidate market power

33
Q

being a monopoly is legal……. is illegal

A

monopolizing a market

34
Q

policy that minimizes harm from exercizing market power

A

price ceiling

35
Q

accounting profit

A

total revenue-explicit financial cost

36
Q

OC of running a business includes

A

forgone wages and interest

37
Q

economic profit

A

total revenue-explicit and implicit costs

determines if you should open a business

38
Q

average revenue

A

price

(TR/Q)

39
Q

firm demand curve is also the

A

AR curve

40
Q

MR=DARP

A

marginal revenue is equal to demand, average revenue, and price

41
Q

average cost

A

costs per unit

total cost/quantity

42
Q

increase in production

A

spreads fixed costs and raises variable costs

43
Q

profit margin =

A

price-average cost

on a graph: profit margin lies between demand curve and AC curve

44
Q

enter a market if

A

you expect positive economic profit

P>AC

45
Q

new competitors make a market….. but then existing competitors exit which restores…….. for those who remain

A

less profitable

profitability

46
Q

exit a market if

A

you expect negative economic profits

AC>P

47
Q

positive economic profit leads to

A

1) rivals enter market
2) your market power decreases
3) P and Q decrease so that you can compete
4) economic profit decreases

48
Q

negative economic profit leads to

A

1) rivals exit market
2) your market power increases
3) P and Q increase because theres less competition
4) economic profit increases

49
Q

in the long run:

A

free entry pushes profits down to zero

free exit ensures market wont remain unprofitable

50
Q

in the long run, price =

A

AC

as long as businesses are free to enter and exit

51
Q

at LR equilibrium

A

ATC just touches the demand curve

ATC is below the demand curve when businesses enter and above it when they exit

52
Q

AC matters because it determines

A

profitability and LR profitability determines barriers to entry

53
Q

demand side barriers to entry (customer lock in)

A

1) switching costs
2) customer loyalty from goodwill
3) network effects

54
Q

supply side barriers to entry (cost advantages)

A

1) learning by doing
2) mass production
3) R and D
4) relationships
5) limit access to key inputs

55
Q

gov barriers to entry (gov policy)

A

1) patents
2) regulations
3) licence reqs
4) lobbying for regulation barriers

56
Q

entry deterrence strategies (scare off rivals)

A

1) excess capacity
2) financial resources
3) brand proliferation can ensure there are no profitable niches to exploit
4) reputation for fighting

57
Q

when MC=demand

A

market is perfectly competitive

58
Q

increase in gov spending= …… in real interest rate

A

increase

higher demand for borrowing equals a higher price for borrowing

59
Q

linear opportunity cost of one unit

A

OC (1 unit x) = change in good y/change in good x

60
Q

unit elastic means that

A

the change in the p offsets the change in q

price elasticity = -1. percent change in qd= percent change in P in the opposite direction

total expenditure will not change

61
Q

in competitive markets reducing trade barriers will never

A

reduce total surplus

62
Q

firms will exit in the short run when

A

they cannot cover their variable costs

63
Q

decreasing ATC doesnt necessisarily mean

A

decreasing MC

64
Q

when the RER>1, the ……. good is more ……..

A

domestic, expensive

65
Q

when the domestic good is more expensive

A

it means the currency is uncompetitive and that means that imports will increase and exports will decrease

66
Q

lowering the FFR counters

A

an economic downturn

67
Q

issuing gov bonds or bills

A

increases money supply which increases inflation

68
Q

efficiency occurs when

A

MC=MB

69
Q

deadweight loss is not counted in

A

consumer surplus

70
Q

oligopolies are more concerned with

A

strategic choices of rivals

monopolies and perfectly competitive firms are less concerned with rivals

71
Q

linear OC simplified

A

(OC good 1)= change in other good/change in good 1

econ 101 (3 decks)

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