Test 1

Question 1

Five Forces

Answer 1

1. Threat of entry
2. Supplier bargaining power
3. Buyer bargaining power
4. Substitutes
5. Rivalry among competitors

Question 2

Buyer power

Answer 2

price power to lower prices

EX: CEMEX

Question 3

Supplier power

Answer 3

is there a monopoly? EX: microsoft/intel

Question 4

Substitutes

Answer 4

EX: tax prep services

Question 5

New entrants

Answer 5

barriers to entry
entry price
incumbent advantages
government policy

Question 6

Rivalry

Answer 6

higher competition costs
market share battles
“price wars”

Question 7

Where are net benefits maximized?

Answer 7

When MB=MC

Question 8

Marginal principle

Answer 8

Increase control variable to point where MB=MC

Question 9

Accounting costs

Answer 9

explicit costs only

Question 10

Economic costs

Answer 10

explicit + implicit (opportunity) costs

Question 11

What happens to PV when the interest rate increases?

Answer 11

PV decreases

Question 12

PV of a stream of future payments

Answer 12

use when future values are different

Question 13

NPV

Answer 13

=PV-C

Question 14

PV of a firm

Answer 14

used if profits are constant

profit growth

Question 15

Incremental costs

Answer 15

additional costs incurred if project is taken on

Question 16

Incremental revenues

Answer 16

additional revenues

Question 17

Demand factors

Answer 17

price of good : Px
consumer income: M
price of related good: Py
consumer tastes: T
expected price of good in future: Pe
#of consumers in market: N

Question 18

What affects QD

Answer 18

changes in price

Question 19

ceteris paribus

Answer 19

other things being equal/held constant

Question 20

Normal good

Answer 20

If M increases then the D for a normal good increases

Question 21

Inferior good

Answer 21

If M decreases then the D for an inferior good increases

Question 22

Substitutes

Answer 22

Increase in price of good x causes increase in demand of good y

Question 23

complements

Answer 23

increase in price of good x causes decrease in demand of good y

Question 24

Consumer expectations

Answer 24

if consumers expect prices to increase in the future then demand will increase in current period

Question 25

Substitution effect

Answer 25

when the price of a good increases, other goods can be used in its place. Opportunity cost has increased EX: red bull price is less so people will substitute red bull for other energy sources

Question 26

Income effect

Answer 26

when the price of a good increases, consumers cannot afford everything they used to buy EX: red bull lowers price so consumers will buy more with, "extra money"

Question 27

Supply factors

Answer 27

``` price of good: Px price of inputs: Pi price of related good: Py Technology: T producer expectations: Pe # of firms: F ```

Question 28

Substitutes in production

Answer 28

if price of good x increases relative to good y, then supply of good x increases and supply of good y decreases

Question 29

Complements in production

Answer 29

increase in price of good x causes producers to supply more of good y as well as good x

Question 30

Excise tax

Answer 30

collected from supplier decrease supply of good based on per unit

Question 31

Ad Valorem tax

Answer 31

rotates supply curve | based on a percentage

Question 32

price ceiling

Answer 32

market can't go above the set price | EX: rent controls

Question 33

price floor

Answer 33

market can't go below the set price | EX: minimum wage

Question 34

Subsidy

Answer 34

when there is surplus, government buys up excess and pays for it

Question 35

qualitative forecasts

Answer 35

just the direction

Question 36

quantitative forecasts

Answer 36

direction and magnitude

Question 37

Demand increase, supply is constant

Answer 37

Equilibrium price and quantity increases

Question 38

demand decreases, supply constant

Answer 38

equilibrium price and quantity decreases

Question 39

supply increases, demand constant

Answer 39

equilibrium price decreases, quantity increases

Question 40

supply decreases, demand constant

Answer 40

equilibrium price increases, quantity decreases

Question 41

Simultaneous shifts

Answer 41

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