Module 5 Flashcards
Business cycle: Peak
firms profits at highest level but facing capacity constraints and input shortages leading to higher costs and higher price levels.
Business cycle: Trough
profits for firms are at lowest point. Experience excess production capacity, leading to reduce workforces and cut costs.
Pure competition
- zero economic profit
- large # of suppliers and customers acting independently
- very little product differentiation
- no barriers to entry
- Firms are price takers
- maintaining market share and responsive of sale prices to market conditions
Monopoly
positive economic profit in long run
- a single firm with a unique profit
- significant barriers to entry
- set output and prices
- No substitute products
Monopolistic competition
- zero economic profits in the long run
- numerous firms with differentiated products
- few barriers to entry
- firms exert some influence over price but have more control over quantity produced
- Significant non-price competition in the market (brand loyalty)
Oligopoly
- positive economic profit in the long run
- few firms with differentiated products
- Fairly significant barriers to entry (high capital costs)
- strongly interdependent firms (prices tend to be fixed)
- Kinked demand curve (firms match price cuts but ignore price increases)
- focus on enhancing market share and ways to adapt to price and volume changes
gov’t policies that have significant impact on economy
- Fiscal policy
- Monetary policy
- Regulations
- Trade controls
How gov’t use fiscal policy
increase gov’t spending and lower taxes expand company, the reverse dampens the economy
3 ways the federal reserve increase money supply
- Open market operations: purchase gov’t securities on open market
- Lower discount rate
- lower required reserve ratio
3 trade controls gov’t uses to impact economy
- embargoes
- tariffs
- quotas
what is fundamental law of demand
price as an inverse relationship with quantity demanded
Factors that shift demand curve (WRITEN)
changes in wealth, prices of related goods, consumer income, consumer tastes, consumer expectations, number of buyers in a market
What is fundamental law of supply
price and supply are positively related. the higher the price received for a good, the more quantity sellers are willing to produce.
Factors that shift supply curves (ECOST)
changes in price expectation of supplying firm, production costs, demand fo other goods, subsidies or taxes, and technology.
What is cross elasticity of demand
- % change in quantity demanded of a good is due to a price change of another good
- % change in # of units in x demanded/% change in price of y
elasticity
measure of how sensitive the demand for or the supply of a product is to a change in its price
price elasticity of demand
the % change in the quantity demanded/% change in price
price elasticity of supply
% change in quantity supplied/% change in price
what is quantitative values of inelasticity of demand and supply, elasticity of demand and supply, and unit elasticity of demand and supply
inelasticity: less than 1
elasticity: greater than 1
unit elasticity: exactly 1
Price ceiling
prices are artificially low, more quantity is demanded than supply is available (market shortage)
Price floor
prices are artificially high, less quantity is demanded than is available (market surplus)
inflation and impact on value of money
Sustained increase in the general prices of goods and services. As prices increase, value of money decreases.
SWOT Analysis
lists strengths and weaknesses (internal factors) and opportunities and threats (external factors).
used by business to develop strategic plans.
Porter’s 5 external forces (BBBEM)
- barriers to market entry
- bargaining power of customers
- bargaining power of suppliers
- existence of substitutes
- market competitiveness
