FINAL B5

Question 1

Define a Kinked demand curve

Answer 1

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

Question 2

What is price elasticity measure?

Answer 2

Measures the percentage change in the quantity demanded relative to the percentage change in price.

Question 3

What is the theory of derived demand?

Answer 3

Demand for factors is directly correlated to the demand for the goods/services the factors are used to produce.

Question 4

What are Porters 5 forces of industry?

Answer 4

1. Barriers to market entry
2. Market competitiveness
3. Existence of substitutes
4. Bargaining power of suppliers
5. Bargaining power of customers

Question 5

What is the impact of a decrease in the US dollar to exporters?

Answer 5

benefit us exporters

Question 6

How do you calc the estimated increase in GDP?

Answer 6

(1/MPS) * govt spending

Question 7

What is a result of increase in prices in relation to an increase to AD?

Answer 7

The quantity of output increase if there is capacity to produce

Question 8

What is the result of an increase in wages on GDP and price?

Answer 8

Increase in wages = decrease on GDP and increase in price

Question 9

What is the impact of the increase in personal income tax on real GDP and unemployment?

Answer 9

Real GDP will fall and unemployment will rise

Question 10

Define Structural unemployment

Answer 10

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

Question 11

Define Frictional unemployment

Answer 11

The unemployment that arises from workers routinely changing jobs or from workers being temporarily laid off.

Question 12

Define stagflation

Answer 12

Stagflation occurs when the economy suffers from a recession that is characterized by falling output, rising unemployment, and a rising price level

Question 13

What is not included in the calculation of GDP?

Answer 13

Household income

Question 14

What does the CPI measure?

Answer 14

Rate of inflation

Question 15

What impact does the increase in govt borrowings have on int rates?

Answer 15

increase int rates

Question 16

How do you calc the real interest rate?

Answer 16

Nominal int rate - inflation

Question 17

What is the explanation of a higher yield on 1-year notes rather than 10-year notes?

Answer 17

investors are expecting reduced inflation in the future as reflected in the lower long-term returns

Question 18

What is the strategic plan focus for an oligopoly?

Answer 18

Maintaining the market share, ensuring product differentiation, and adapting to changes in the price and/or production volume

Question 19

Define monopolistic competition

Answer 19

market with many independent firms
Low barriers to entry
Product differentiation

Question 20

When does cost leadership strategies fail?

Answer 20

when buyers become less price sensitive and start to have brand loyalty

Question 21

Define vertical linkage analysis

Answer 21

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

Question 22

What is the impact of the increase in quantity demanded on a product in relation to price?

Answer 22

decrease in price. (shift along the curve)

Question 23

What does an increasing federal deficit imply?

Answer 23

Tax revenues have decreased and more entitlement payments

Question 24

In microeconomics, what is the distinguishing characteristic about LR supply?

Answer 24

All inputs are variable

Question 25

What is the strategic plan under monopolistic competition?

Answer 25

Maintaining the market share and planning for enhanced product differentiation

Question 26

What is not an effect from opening markets to foreign investment?

Answer 26

A decrease in investment growth rates

Question 27

What does the demand curve represent

Answer 27

The max quantity of a specific good that consumers are willing and able to purchase at each price

Question 28

how do you calc the income elasticity?

Answer 28

%change in Q / % change in income

Question 29

What happens if income elasticity is negative?

Answer 29

Negative = inferior good
Positive = normal good

Question 30

What is the result if cross elasticity is positive?

Answer 30

if positive = substitute

if negative = compliment