FINAL B5 Flashcards
Define a Kinked demand curve
When oligopolist lower its price, the other firms in the oligopoly will match price reduction, but if the oligopolist raises its price, the other firms will ignore the price change
What is price elasticity measure?
Measures the percentage change in the quantity demanded relative to the percentage change in price.
What is the theory of derived demand?
Demand for factors is directly correlated to the demand for the goods/services the factors are used to produce.
What are Porters 5 forces of industry?
- Barriers to market entry
- Market competitiveness
- Existence of substitutes
- Bargaining power of suppliers
- Bargaining power of customers
What is the impact of a decrease in the US dollar to exporters?
benefit us exporters
How do you calc the estimated increase in GDP?
(1/MPS) * govt spending
What is a result of increase in prices in relation to an increase to AD?
The quantity of output increase if there is capacity to produce
What is the result of an increase in wages on GDP and price?
Increase in wages = decrease on GDP and increase in price
What is the impact of the increase in personal income tax on real GDP and unemployment?
Real GDP will fall and unemployment will rise
Define Structural unemployment
Structural employment occurs when the jobs available do not match the skills of the unemployed individuals or when the individuals do not live where jobs are available with their skills
Define Frictional unemployment
The unemployment that arises from workers routinely changing jobs or from workers being temporarily laid off.
Define stagflation
Stagflation occurs when the economy suffers from a recession that is characterized by falling output, rising unemployment, and a rising price level
What is not included in the calculation of GDP?
Household income
What does the CPI measure?
Rate of inflation
What impact does the increase in govt borrowings have on int rates?
increase int rates
How do you calc the real interest rate?
Nominal int rate - inflation
What is the explanation of a higher yield on 1-year notes rather than 10-year notes?
investors are expecting reduced inflation in the future as reflected in the lower long-term returns
What is the strategic plan focus for an oligopoly?
Maintaining the market share, ensuring product differentiation, and adapting to changes in the price and/or production volume
Define monopolistic competition
market with many independent firms
Low barriers to entry
Product differentiation
When does cost leadership strategies fail?
when buyers become less price sensitive and start to have brand loyalty
Define vertical linkage analysis
Understanding the activities of the suppliers and buyers of the product and determining when value can be created external to the firms operations
ex. production managers visting to the suppliers location
What is the impact of the increase in quantity demanded on a product in relation to price?
decrease in price. (shift along the curve)
What does an increasing federal deficit imply?
Tax revenues have decreased and more entitlement payments
In microeconomics, what is the distinguishing characteristic about LR supply?
All inputs are variable
What is the strategic plan under monopolistic competition?
Maintaining the market share and planning for enhanced product differentiation
What is not an effect from opening markets to foreign investment?
A decrease in investment growth rates
What does the demand curve represent
The max quantity of a specific good that consumers are willing and able to purchase at each price
how do you calc the income elasticity?
%change in Q / % change in income
What happens if income elasticity is negative?
Negative = inferior good Positive = normal good
What is the result if cross elasticity is positive?
if positive = substitute
if negative = compliment
