The economic environment of business and finance Flashcards
For inelastic products (PED < 1), how do you increase revenue?
Increase the price
For elastic products (PED > 1), how do you increase revenue?
Reduce the price
Example of Giffen good
bread
Example of Veblen good
Rolex
What are the four factors of production?
Land
Labour
Capital
Entrepreneurship
What is the return on land?
Rent
What is the return on labour?
Wages
What is the return on capital?
Interest
What is the return on entrepreneurship?
Profit
What are the four stages of the business/trade cycle?
Recession
Depression
Recovery
Boom
Growth during a recession?
Negative
Unemployment during a recession?
High and rising
Inflation during a recession?
Low
solutions for a recession?
Boost demand
Increase government spending
Decrease taxation
Cut interest rates to increase consumption
Growth during a depression?
Negative
Unemployment during a depression?
High and rising
Inflation during a depression?
Increasing
solutions for a depression?
boost supply
free up land
free up labour
Growth during a recovery
starting to rise
unemployment during recovery
falling
inflation during recovery?
moderate
solutions for recovery?
decrease government spending
increase taxation
raise interest rates
growth during a boom?
high
unemployment during a boom?
low
inflation during a boom?
high and rising
solution for a boom?
reduce demand
decrease government spending
increase taxation
raise interest rates
What are the two types of inflation?
Cost-push
Demand-pull
What are the two types of demand-pull inflation?
Fiscal
Credit
what is fiscal demand pull inflation?
when an increase in government spending or reduction in taxes raises demand in the economy
what is credit demand-pull inflation?
when levels of credit extended to customers increases, so expenditure rises
What does monetary policy focus on?
Interest rates
Exchange rates
Money supply
What does fiscal policy focus on?
Government spending
Taxation
Borrowing
What is an expansionary fiscal stance?
Government spending > taxation
What is a contractionary fiscal stance?
Government spending < taxation
What is a neutral fiscal stance?
Government spending = taxation
What are the four main types of market structure?
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
In what type of market structure:
is there a single selling price across the market?
Perfect competition
In what type of market structure:
do suppliers make normal profits?
Perfect competition
Monopolistic competition
In what type of market structure:
are there homogeneous products?
perfect competition
In what type of market structure:
are there super normal profits?
Monopoly
What are the four types of monopoly?
Pure
Actual
Government franchise
Natural
In what type of market structure:
are there likely to be price wars?
Oligopolies
In what type of market structure:
can there be collusion to form cartels?
Oligopolies
What are the four types of market failure?
Market imperfections
Externalities
Public goods
Economies of scale
