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grade 12 economic profit > unit 2 review > Flashcards

unit 2 review Flashcards

1
Q

Perfect competition

A
  • When there is many producers selling uniform products
  • Many buyers and sellers that individual firms have no control over the total market supply
  • Price takers (no control over price), prices are determined by the market (equilibrium)
  • Little no-price competition: sell identical products
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2
Q

Short run

A

In the short run the equilibrium market price is determined by the interaction between market demand and market supply

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3
Q

Profit Maximization 1

A

Occurs when marginal revenue is equal to marginal cost (MR=MC)
- If P > AC = economic profit
- If P = AC = breakeven point
- If P < AC = economic loss
- If P < AVC = shutdown point

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4
Q

Long run

A

In the long run businesses enter and exit the market driving each perfect competitor to its breakeven point
- Economic profits causes businesses to enter the market and drive prices down
- Economic losses causes business to exit the market and drive prices up

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5
Q

Monopoly

A

One firm or organization enjoys complete control over the market
- Single firm: complete control over total supply
- Unique product (no close substitutes)
- Price-maker – by changing supply can get whatever price will maximize their total profits)
- No entry or exit (legal or financial barriers)
- No competition means that there is no need for non-price competition

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6
Q

Demand curve

A
  • Since there is only a single seller, the demand curve is also the market demand curve
  • Steep downward sloping
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7
Q

Revenue curve

A

Demand curve is equal to the average revenue
- Price per output
Since the demand curve (AR) falls as quantity increases, MR lies below

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8
Q

Profit maximization 2

A
  • Profit maximizing output occurs when MR=MC
  • At this output, they charge the highest price possible
  • In the short-run, monopolists may break even or earn economic profit or loss
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9
Q

Monopolistic competition

A
  • Product can be differentiated and there are a substantial number of firms operating in the market
  • i.e. service and retail sectors (restaurants, clothing stores
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10
Q

Oligopoly

A
  • Operate as huge firms in each of their respective markets
  • Few large firms
    Product may be similar or differentiated (steel vs. car)
  • Control to set price varies from slight to substantial
  • Each firm has a large market share
  • Common pricing strategy among oligopolistic may occur
  • Significant barriers to enter: financial
  • Significant non-price competition (loyalty, product differentiation)
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11
Q

Examples of oligopoly

A

-Big Five Banks
- -RBC, TD, Bank of Nova Scotia, BMO, and CIBC
-Three companies share 90% of Canada’s Wireless Market
- -Rogers, Telus and Bell
-Four Companies control the internet service provider market
- -Rogers, Bell, Telus and Shaw

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12
Q

Adam smith - the classical economists

A
  • Wrote at the dawn of capitalism.
    ŸAnalyzed society in terms of broad classes, historical change.
  • Celebrated creativity and thrift of the new class of capitalists.
  • Identified division of labor as a source of productivity in a new industry.
  • Believed prices reflected labor values, and that wages tended to subsistence.
  • Markets and competition will lead to mutual benefits (including through international trade).
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13
Q

Karl Marx

A
  • Critiqued the inhumanity and exploitation of capitalism.
  • Argued that profit reflects social relations, not the real productivity of capital.
  • Predicted that capitalism would end because of internal conflicts and instability.
  • Recognized that prices do NOT equal labor values, but tried to explain how they are related to labor values.
  • Co-founded international workers’ political party.
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14
Q

Leon walras- Neoclassical economics

A
  • Founded in 1870s as response to Marx’s critiques and growth of socialist movements.
  • Justified capitalism and the payment of profit.
  • Focused analysis on individuals, not classes.
  • Theory of general equilibrium, in which all markets (for factors and products) clear.
  • Faith in self-adjusting, welfare-maximizing power of markets.
    Came to dominate economics teaching.
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15
Q

John maynard keynes

A
  • Wrote in context of 1930s: prolonged depression which disproved neoclassical model.
  • Explained why long-run unemployment might exist.
  • Showed that output and employment depend on spending power (“aggregate demand”).
  • Advocated government intervention (spending, tax changes) to offset recessions.
  • Intellectual underpinning for New Deal policies.
  • In long-run, urged socialization of investment.
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16
Q

Milton friedman- fundamentalist

A
  • Neoclassical theory tolerated Keynesian ideas until 1970s.
  • Breakdown of Golden Age spurred rejuvenation of core faith in private markets.
  • Milton Friedman: government intervention only causes inflation and unemployment.
  • Advocated monetary targeting (“monetarism”) to control inflation, labour market “flexibility” (eg. deunionization) to solve unemployment.
  • Intellectual underpinning for neoliberalism.
17
Q

Law of diminishing marginal returns

A

When marginal product begins to decrease as more variable inputs (i.e. workers) are being added to an increasingly scarce fixed input (i.e. land or machines)

18
Q

Elasticity

A
  • allows us to analyze supply and demand with greater precision.
  • is a measure of how much buyers and sellers respond to changes in market conditions
19
Q

Elasticity of demand

A
  • Price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good.
  • Price elasticity of demand is the percentage change in quantity demanded given a percent change in the price.
20
Q

Elasticity of supply

A
  • Price elasticity of supply is a measure of how much the quantity supplied of a good responds to a change in the price of that good.
  • Price elasticity of supply is the percentage change in quantity supplied resulting from a percent change in price.
21
Q

Determinants of elasticity of supply

A
  • Ability of sellers to change the amount of the good they produce.
  • Beach-front land is inelastic.
  • Books, cars, or manufactured goods are elastic.
  • Time period.
  • Supply is more elastic in the long run.

grade 12 economic profit (1 decks)

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