Post Course

Question 1

Five Forces of Framework

Answer 1

Threat to entry: patents, trademarks, copyrights
Buyer bargaining power: can lower prices
Supplier bargaining power: is there only one supplier?
Substitution: more substitutes, more elastic
Rivalry among competitors: price wars

Question 2

Accounting cost

Answer 2

explicit costs

Question 3

Economic cost

Answer 3

opportunity (implicit) costs + explicit costs

Question 4

Normal good

Answer 4

If income increase, demand for that good will increase

Question 5

Inferior good

Answer 5

If income increases, demand for that good will decrease

Question 6

Subsitutes

Answer 6

If the price of good x increases, demand for good y increases

Question 7

Complements

Answer 7

If the price of good x increase, demand for good y decreases

Question 8

Excise tax

Answer 8

collected from supplier that decreases supply of a good, based on a per unit
increases equilibrium prices
EX: gasoline tax

Question 9

Ad Valorem tax

Answer 9

rotates supply curve, based on a percentage
increases equilibrium prices
EX: sales tax

Question 10

Price ceilings

Answer 10

market can’t go above set price, which is set below the equilibrium
This is in response to a surplus in the market, and unfair scarcity exists
creates a shortage
EX: rent controls

Question 11

Price floors

Answer 11

market can’t go below set price, which is set above the equilibrium
In response to shortage, and creates a surplus
EX: minimum wage

Question 12

If demand increases and supply stays constant?

Answer 12

Price and quantity increase

Question 13

If demand decreases and supply stays constant?

Answer 13

Price and quantity decrease

Question 14

If supply increases and demand stays constant?

Answer 14

price decreases and quantity increases

Question 15

If supply decreases and demand stays constant?

Answer 15

price increases and quantity decreases

Question 16

Simultaneous shifts in demand and supply

Answer 16

demand increases, supply increases: quantity increase
demand increases, supply decreases: price increases
demand decreases, supply increases: price decreases
demand decreases, supply decreases: quantity decrease

Question 17

linear demand curve vs. log linear demand curve

Answer 17

linear: constant slope, not elasticity

log linear: constant elasticity, not slope

Question 18

Inelastic and total revenue

Answer 18

when prices increase, total revenue increases

Question 19

Elastic and total revenue

Answer 19

when prices increase, total revenue decreases

Question 20

Consumer equilibrium

Answer 20

marginal rate of substitution (slope of indifference curve) = market rate of substitution (slope of budget line)

Question 21

Economies of scale

Answer 21

in the LRAC decreases as output increases

Question 22

Economies of scope

Answer 22

the cost of producing two types of output together is less than the cost of producing each one separately

Question 23

Cost complementary

Answer 23

the marginal cost of one good decreases as output of another good increases
EX: donut holes

Question 24

Spot exchange

Answer 24

firm has one time deal
no protection against opportunism and hold-ups
pro: firm gets to specialize
con: no protection

Question 25

Contract

Answer 25

agreed upon pricing and amount purchased pro: firm gets to specialize con: not complete protection, and can not count for all contingencies possible

Question 26

Vertical Integration

Answer 26

Firms start to produce their own inputs pro: don't have to deal with suppliers con: no more specialization and much incur input costs

Question 27

Principal agent problem

Answer 27

Solutions: profit sharing: based on profitability, like shares revenue sharing: based on revenue, like commission piece rates: based on how much output time clocks and spot checks:

Question 28

Site specificity Physical assets specificity dedicated assets human capital

Answer 28

Firms locate near suppliers firms good only works in specific model new segments created for specific buyers: government trained skills only usable for current job

Question 29

Factors affecting own price elasiticity

Answer 29

available substitutes: the more substitutes, the more elastic time: the more time, the more elastic expenditure share: smaller the share, the more inelastic

Question 30

Demand shifters

Answer 30

``` change in income: M change in other good: Py change in # of consumers change in price of good: Px consumer tastes and preferences expected price of good in future ```

Question 31

Quantity demand shifter

Answer 31

change in price, moves along the demand curve

Question 32

Own price of elasticity for linear demand curves

Answer 32

%change in quantity / %change in price or | beta(Px/Qx)

Question 33

Own price of elasticity for log linear demand curves

Answer 33

the coefficient of Px in the equation

Question 34

Income elasticity for linear demand curves

Answer 34

%change in quantity / %change in income or | beta(M/Qx)

Question 35

Income elasticity for log linear demand curves

Answer 35

the coefficient for M in the equation

Question 36

Cross-price elasticity for linear demand curves

Answer 36

%change in quantity of x / %change in price of y or | beta(Py/Qx)

Question 37

Cross-price elasticity for log linear demand curves

Answer 37

the coefficient for the other good