MIDTERM Part 2 Flashcards
The incentives and constraints in a competitive market are the same as those in a market where one company enjoys a monopoly.
False
Which of the following statements about corporations is true?
Corporation owners are personally responsible for the financial obligations of the organization.
A monopoly means…
literally one seller
How are monopolistic firms detrimental to the economy?
limited consumer choice
Monopolies are fairly easy to maintain in a free market setting.
False
Individual members of cartels have incentives to cheat.
True
A regulatory commission would ideally set prices where they would have been if there were a competitive marketplace.
True
Which of the following is a reason that a regulatory commission would have trouble setting competitive marketplace prices?
Only the actual functioning of a market itself could reveal such high prices.
Anit-Trust laws are, in theory, intended to…
prevent monopoly and other non-competitive conditions and prices higher than competitive market prices.
The key to monopoly is not market share, even when it is 100%. The key to monopoly is
The ability to keep other competitors out.
There is no difference between what is detrimental to competition and what is detrimental to competitors.
False
The % of a market “controlled” by this or that company ignores the roles of substitutes.
True
Profits and losses are just as important for the economy as a whole as they are for individual businesses.
True
Which of the following statements about profits is NOT true?
Profits are wasteful overcharges that add to the inherent cost of production.
The term “economies of scale” refers to a situation where…
There are lower costs per unit of output as the number of units increases.
What is the opposite of “economies of scale”?
Diseconomy of scale
Costs or savings incurred by businesses are AUTOMATICALLY passed on to the consumers…
False
Getting rid of middlemen will ALWAYS increase efficiency….
False
What is economics?
The study of the use of scarce resources which have alternative uses.
How is wealth created?
Converting raw materials into a finished product that is valued more than the sum of its parts.
How is economic activity coordinated under different economic systems?
Through supply and demand or central planning by a government authority in a command economy.
How do we talk about costs in this class?
The corporate expense incurred for making a product or providing a service.
What is the purpose and functioning of prices?
It sends out a signal to buyers and sellers of the value of those goods and services.
It also helps producers decide which goods to produce and how much to make.
What is the purpose and functioning of price controls?
Price ceilings and floors were created to prevent inflation and shortages of suplies.
How do prices fluctuate in a market economy?
Supply and Demand
-When Supply increases, demand decreases
Equilibrium
-When supply and demand are equal
Seasonality
Improved Technology
-Decreases production costs; increases supply, and leads to lower prices
How do companies become large and profitable?
-Quickly taking opportunities and taking risks
-Adapting to change
- Developing new products and services that meet consumer’s demands
What are economies of scale?
The cost advantage experienced by a firm when it increases its level of output.
What are diseconomies of scale?
When a company/business grows so large that the costs per unit increase.
How are goods and services valued?
It is dependent on the scarcity of the good or service and the demand of the consumers.
What are the different incentives and constraints in different economic systems and situations?
Incentives:
-Pay Increase
-Reduction in pay or bonuses
-Lost possession of job
-Growth in business
Constraints:
-Inflation
-Interest Rates
-Unemployment rates
What are corporations?
-Defined by their limited liability
- Owned by thousands or millions of people through stocks and shares
What are monopolies?
Oligopolies?
Cartels?
Monopolies only exist when a single seller of some product or service exists in a society.
Oligopolies are when a number of sellers work together that there is basically one seller.
Cartels are when companies agree to not compete with each other in order to keep high prices.
What are the outcomes of monopolies?
Higher prices
-There is no competition so prices can remain high
Lower Quality
Less Innovation
-No incentive to create new ideas
What are some of the differences between market and non-market economies?
Market Economy
- Prices are set by supply and demand
- Individuals/businesses make production/consumption decisions based on self interest
- Limited government role
Non-Market Economy
-Prices are set by a central authority
-These decisions are made by the central authority
- Large government role
