MORE Knowledge Flashcards
WHAT is Marginal Product?
IT is the additional output obtained by adding one extra unit of input
E.g. It is computed by dividing the change in total output at a given level of input by the change in inputs
Fill in the Blank:
Monopolistic competition is characterized by 1
- A Relatively large group of sellers who produce differentiated products
E.g. Key Characteristics include:
A. Large number of firms offering differentiated products
B. Entry into the market is relatively easy
C. Firms have some price control
D. Substantial non-price competition exists
WHAT is a markets characteristic in which price discrimination is accomplished?
Fairly distinct segments of customers
E.g. Discriminatory pricing adjusts for differences among customers
WHAT is the expected result if:
A group of consumers decide to boycott a particular product?
THERE would probably be a decrease in the demand for the product
WHY? - Because the decrease in demand should lead to a lower price for the product assuming that supply is constant
Note: The Supply Curve does not shift
WHAT market structure is most apt to demonstrate “price leadership” by a major firm?
This is a market structure of an:
Oligopoly
E.g. Price leadership is typical in oligopolistic industries
WHAT is opportunity cost?
THE return available from the best alternative investment
E.g. Using invested savings account, which is paying 5% interest annually, to invest in a coffee shop
WHAT is a characteristic of an industry that is oligopolistic?
ONE in which there is Significant barriers to entry
E.g. High capital requirements
NOTE: An oligopolistic industry is characterized by only a few firms
WHAT is the short-run effect if the federal government regulates a product or service in a competitive market?
E.g. They set the maximum price below the equilibrium price?
The short run effect will be a shortage
WHY? - Because consumer demand will exceed supply
WHAT is the Theory of Derived Demand?
THAT the demand for the inputs to production (factors) are derived from the demand for the outputs (final goods)
E.g. Increased demand for Product A increases the demand for resources used to produce Product A
WHAT is the Theory of the “invisible hand?”
AN unobservable market force that helps the supply and demand of goods in a free market automatically reach equilibrium
WHAT is an assumption in a perfectly competitive financial market?
No single trader or traders can have a significant impact on market prices
WHY? - Because each seller can supply only a small part of the total demand and must accept the market price
WHAT is normal profit?
A cost of resources from an economic perspective
IT is the level of profit necessary to induce entrepreneurs to enter and remain in the market
NOTE: Economists view this profit as an implicit cost of economic activity
WHAT should happen to Revenue as prices fall when elasticity exceeds 1.0?
Revenue should RISE
E.g. Elasticity of demand for a normal good is estimated to be 2.5. A 5% reduction in its price will cause a 12.5% increase in demand
AT what output do firms produce in markets that are imperfectly competitive (e.g. a monopoly and monopolistic competition)?
AT an output at which:
Marginal cost equals marginal revenue
WHAT is Inelasticity?
THE condition in which the percentage % change in Quantity is less than the percentage % change in $ price
