question

TR (Total Revenue) Formula

answer

TR = QxP or TR = # of units sold x avg. price p. unit

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TC (Total Costs) Formula

answer

TC = TFC+TVC or TC = Total Fixed Cost + Total Variable Cost

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Profit Formula

answer

TR-TC or Total Revenue - Total Cost

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Percentage Change Test Formula

answer

(% of change) (Qd) / (% of change)(P) or (% of change) (Quantity demanded) / (% of change) (Price)

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MP (Marginal Product) Formula

answer

MP = the total product - the one above it TP MP 0 0 8 8 9 1

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AVC (Average Variable Cost) Formula

answer

AVC = TVC / # of units produced or AVC = Total Variable Cost / # of units produced

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AFC (Average Fixed Cost) Formula

answer

AFC = TFC / # of units produced

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ATC (Average Total Cost) Formula

answer

ATC = AFC + AVC

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MR (Marginal Revenue) Formula

answer

MR = change in TR / MP or MR = change in Total Revenue / Marginal Product

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MC (Marginal Cost) Formula and Definition

answer

Extra variable costs incurred when a business produces an additional unit of a product

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TFC (Total Fixed Costs) Exps and Definition

answer

TFC happens even if NO production is taking place or the plant is closed Examples: rent, management salaries, lease, taxes like property, interest on bond payments, depreciation on capital goods

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TVC (Total Variable Cost) Exps and Definition

answer

TVC changes as rate of production changes Examples: hourly labor, raw materials, freight or shipping charges, utilities

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Always produce where:

answer

Marginal Cost equals Marginal Revenue; this WILL BE the point of profit maximization!

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Scarcity

answer

Fundamental economic problem facing all societies that results from a combination of scarce resources and people's virtually unlimited wants

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Opportunity Cost

answer

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

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Four factors of production

answer

Land, labor, capital, and entrepreneurship

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Macroeconomics

answer

The branch of economic theory dealing with the economy as a whole and decision making by large units such as governments and unions

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Perfect (Pure) Competition Characteristics

answer

1. Large numbers of buyers/sellers 2. Homogenous/identical products 3. Well informed buyers/sellers 4. Easy to enter and leave the market

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Perfect (Pure) Competion Exps

answer

Natural resource markets, agricultural markets, stock markets

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How Price is Determined in a Perfect Competition Market

answer

Where Quantity supplied equals Quantity demanded Qs=Qd "Price takers" Look at Market Structure notes

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Monopolistic Competitive Characteristics

answer

1. Large numbers of buyers/sellers 2. Products are differents 3. Well informed buyers/sellers 4. Easy to enter and leave the market

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Monopolistic Competitive Exps

answer

Restaurants in general, shoes in general, pharacerticals, credit cards

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How Price is Determined in a Monopolistic Competitive Market

answer

Where Qs=Qd except a. monopolistic side = higher price = price determined b. competitive side = high price = too high (substitutions) c. price searcher

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Oligopoly (Price Leader) Characteristics

answer

1. Few interdependant sellers 2. Pricing is very interdependant 3. Difficult to enter (it's expensive)/leave this market (legality/contracts) 4. Incomplete info about the market 5. Varying degree of price control

question

Results of Interdependant Pricing

answer

1. Price wars 2. Prices in this market tend to be higher because of less competition 3. Collusion: Price fixing (illegal) a. International examples 1. Cartels (OPEC): try to limit production b. Keizien: companies are allowed to collude

question

Oligopoly Exps

answer

Fast food hamburger franchises, steel industry, breakfast cereals, auto industry, software, soft drink, gas retailers

question

What happens when a competitor highers its price in an Oligopoly Market? When it lowers its prices?

answer

Demand tends to be elastic Demand tends to be inelastic

question

How is Price Determined in an Oligopoly?

answer

The kinked demand curve -When Demand is a straight line across, it's perfectly elastic -When Demand is a straight line up, it's perfectly inelastic (Kinked Demand Curve - look at Market notes)

question

Monopoly Characteristics

answer

1. Single seller 2. Unique product 3. Very difficult to enter/leave 4. Complete information (that's the only reason this market can exist) 5. Great deal of price control

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The Four Types of Monopoly Markets

answer

Four legal types: 1. Natural (electric, gas, H2O companies) 2. Geographic (can only exist because of good planning and fortune) 3. Technological (patent [20 years], intellectual property rights, Copy Rights [life+70 years], trademarks [forever]) 4. Government (USPS, National Defense, electric, gas, city utilities)

question

How Price is Determined in a Monopoly Market

answer

MR=MC (profit max) Look at market structure notes

question

VAT (Value Added Tax) Definition

answer

A tax placed on the value that manufacturers add at each stage of production

question

VAT (Value Added Tax) Advantages

answer

Hard to avoid; widely spread; easy to collect; people would spend less and save more because none of your money is taxed until it's spent

question

VAT (Value Added Tax) Disadvantages

answer

It tends to be virtually invisible, so it is not obvious that the VAT is what highers the price of the item (in other words, it is difficult for taxpayers to be aware or alert about higher taxes if they can't see them)

question

Incedence of Tax

answer

Page 231 figure 9.1 -The final burden of tax

question

Trade-offs

answer

Alternatives that must be given up when one choice is made rather than another

question

Voluntary Exchange

answer

Act of buyers and sellers freely and willingly engaging in market transactions; characteristic of capitalism and free enterprise

question

Profit Maximization

answer

MR=MC

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Traditional (Developing) Economy Characteristics

answer

1. Stems from ritual habit or custom 2. Dictates social behavior 3. Roles of individuals are defined by customs of ancestors

question

Examples of a Traditional (Developing) Economy

answer

-Central African Mbuti -Australian Aborigines -Northern Canada

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Advantages of a Traditional (Developing) Economy

answer

1. Everyone knows what role to play 2. What to produce and how to produce are certain

question

Disadvantages of a Traditional (Developing)Economy

answer

1. Discourages new ideas and new ways to do things 2. Lack of progress leads to economic stagnation and a lower standard of living

question

Command (Communism) Economy Characteristics

answer

1. People aren't allowed to own their own businesses 2. The government makes the major economic decisions 3. Individual freedom is limited 4. Government officials tend to favor themselves in decision-making

question

Command (Communism) Economy Examples

answer

North Korea and Cuba

question

Advantages of a Command (Communism) Economy

answer

1. Capable of dramatic changes in a short time 2. Many basic education, health, and other public services available at little or no cost

question

Disadvantages of a Command (Communism) Economy)

answer

1. Doesn't meet wants/needs of consumers 2. Lacks effective working incentives 3. Reguires a large beuraucracy 4. Little flexibility 5. Lacks room for individual initiative

question

Characteristics of a Market Economy

answer

1. Great deal of freedom 2. Businesses are free to find the best ways to produce 3. Money that consumers earn and spend determines for whom and where goods and services are exchanged in capitalism

question

Examples of a Market Economy

answer

-US -Japan -South Korea -Singapore -Australia -Great Britain -Other parts of Western Europe

question

Advantages of a Market Economy

answer

1. High individual freedom 2. Adjusts gradually to change 3. Relatively small degree of government interference 4. Decision making is decentralized 5. Variety of goods and services 6. High degree of consumer satisfaction

question

Disadvantages of a Market Economy

answer

1. Doesn't provide for everyone or enough basic goods and services 2. High degree of uncertainty

question

Characteristics of Socialism

answer

1. Mixed economy 2. When the government or tradition, as well as markets, answer some of the questions of how, what, and for whom to produce 3. Less important than the way basic economic decisions are made 4. Communism is the most extreme form

question

Examples of Socialism

answer

China, Norway, Cuba, North Korea

question

Advantages of Socialism

answer

1. Provides assitance for some people who might otherwise be left out 2. If the society is democratic, voters can use their electoral power for what, how, and for whom decisions 3. Under this, those lsess fortunate still have certain benefits 4. Tends to provide more services

question

Disadvantages of Socialism

answer

1. Costs for benefits can mean higher costs for citizens overall 2. High tax rates 3. Less money is available during economic downturns 4. In these countries, services may be limited or quality may deteriorate over time 5. Production costs may raise

question

Free Enterprise Economy Definition

answer

Market economy in which privately owned businesses have the freedom to operate for a profit with little government intervention.

question

Characteristics of a Free Enterprise System

answer

1. Economic freedom - people can choose their jobs, employers, and how to spend their money. Businesses may choose what products to sell and how much to charge for them. 2. Private property rights - people their possession as they wish. 3. Voluntary exchange - buyers and sellers may engage freely and willingly in market transactions. 4. Profit motive - people and organizations may improve their material well-being by making money 5. Competition - producersd and sellers compete with one another to attract consumers, while lowering costs. Comsumers compete with one another to obtain the best products at lower prices.

question

Law of Demand

answer

Rule stating that more will be demanded at lower prices and less at higher prices; inverse relationship between price and *Quantity Demanded* (If price goes up, demand goes down)

question

Diminishing Marginal Utility

answer

Decrease in satisfaction or usefulness as additional units of a product are acquired

question

Elasticity of Demand (Define)

answer

How much change occurs

question

Elastic Demand

answer

Change in price equals a large change in Qd

question

Inelastic Demand

answer

Change in price equals small change in Qd

question

Unitary Elastic Demand

answer

Change in price equals a proportional change in Qd

question

Reasons for Change in Supply

answer

1. Change in cost of production 2. Technological improvements 3. Natural disaster/other events (i.e. strike) 4. Government policies

question

Reasons for Change in Demand

answer

1. Change in consumer tastes/preferences 2. Change in income 3. Change in number of consumers/population 4. Change in the price of complementary goods (these have an inverse relationship, like peanut butter and jelly) 5. Change in the price of substitute goods (these have a direct relationship) 6. Change in consumer expectations

question

Law of Supply

answer

Principle that more will be offered for sale at high prices than at low prices (P goes up, Qs goes up; P goes down, Qs goes down)

question

Elasticity of Supply (Define)

answer

A measure of the way in which the Qs responds to a change in price

question

Elastic Supply

answer

Small change in P equals a large change in Qs

question

Inelastic Supply

answer

Small change in P equals a small change in Qs

question

Unitary Elastic Supply

answer

Change in P equals a proportional change in Qs

question

Marginal Analysis

answer

Decision making that compares the extra cost of doing something to the extra benefits gained

question

Shortage

answer

A situation in which the Qd is greater than the Qs at a given price

question

Surplus

answer

A situation in which the Qs is greater than the Qd at a given price

question

Price Ceiling

answer

A maximum legal price that can be charged for a product

question

Price Floor

answer

The lowest legal price that can be paid for a good or service

question

Equilibrium Price

answer

The price at which the number of units produced equals the number of units sold

question

Fixed Cost

answer

Costs of production that do not change when output changes

question

Variable Cost

answer

Production cost that varies as output changes; labor, energy, raw materials

question

Prices as Signals

answer

P is a signal, giving info to buyers and sellers -High prices: buyers buy less and producers produce more -Low prices: buyers buy more and producers produce less

question

Difference between S and Qs

answer

Qs: amount offered for sale at a GIVEN price; its a POINT on the supply curve S: amount of a product offered for sale at ALL POSSIBLE prices in a market

question

Graphing Effect when Supply Shifts

answer

Supply grows: graph will shift to the right Supply lowers: graph will shift to the left

question

Graphing Effect when Demand Shifts

answer

Demand grows: graph will shift to the right Demand lowers: graph will shift to the left

question

Sole Proprietorship

answer

A business run by one person

question

Advantages of a Sole Proprietorship

answer

-Smallest -Easy to start up -Ease of management -Owner gets all profit -Tax paid only on owner's personal income -Psychological satisfaction -Ease of closing

question

Disadvantages of a Sole Proprietorship

answer

-Unlimited liability -Hard to get loans -Less efficient -Cost of carrying minimum inventory -Limited managing experience -Hard to attract qualified employees -Limited life

question

Partnership

answer

A jointly owned business (two types: general and limited) -50/50 is the worst division possible

question

Advantages of a Partnership

answer

-Ease of startup -Ease of management -No special taxers -Easier to get loans -Learger aids -Easier to attract skilled employees

question

Disadvantages of a Partnership

answer

-You're responsible for the acts of the others (except in a limited) -Limited life because the other might leave -Potential for arguments

question

Corporation (Definition and Characteristics)

answer

A business organization recognized by law as separate with all the rights of an individual (two types: common and prefered stock) -Common: 1 vote for every owned share -Preferred: don't get a vote

question

Proxy

answer

Giving up your voting rights

question

Advantages of a Corporation

answer

-Easier capital raise -Professional managers run the firm -Owners have limited liability -Easy to transfer ownership -Unlimited life

question

Disadvantages of a Corporation

answer

-Charters can be expensive -Ownership and management are separate -Corporate income is taxed twice -Subject to government regulatoni -Detailed records have to be kept for payments (compliance)

question

Why Market Failures Occur

answer

1. Inadequate competition 2. Inadequate informatin 3. Resource immobility 4. Public goods 5. Externalities (unintended side effects)

question

Positive Externalities

answer

A benefit someone receives because of the actions of others

question

Negative Externalities

answer

Harm, cost, or inconvenience suffered by a third party because of the actions of others

question

Types of Mergers and their Characteristics

answer

1. Horizontal: takes place when firms that produce the same kind of products join forces --> JP Morgan Chase 2. Vertical: when companies involved in different stages of manufacturing or marketing join together --> US Steel Corporation

question

Multinationals

answer

A corporation that has manufacturing on service operations in a number of different countries, like GM, Sony, Shell, etc.

question

How Wages are Determined

answer

Supply and demand, power of unions, and prior education

question

Producer Cooperative

answer

Helps members to promote or sell their products -Most of these in the US are made up of farmers

question

Reasons for Merging

answer

-Grow faster -Become more efficient -Acquire/deliver a better product -Eliminate a rival -Change its image

question

Local Government Taxes

answer

Excise, utility, property, user, individual, intergovernmental income

question

State Government Taxes

answer

Excise, gift, sales, user, individual, intergovernmental income, estate

question

Federal Taxes

answer

Excise, FICA, estate (death), user, corporate income, individual, gift

question

Proportional Tax

answer

Tax in which the percentage of income paid in tax is the same regardless of the level of income

question

Progressive Tax

answer

Tax where percentage of income paid in tax rises as level of income rises (Tax goes up as income rises)

question

Regressive Tax

answer

Tax where the percentage of income paid in tax goes down as income rises (Tax goes down as income goes up)

question

User Fee

answer

Fee paid for the use of a good or service (form of a benefit tax)

question

Sin Tax

answer

Relatively high tax designed to raise revenue and discourage consumption of a socially undesirable product

question

Estate Tax

answer

Tax on the transfer of property when a person dies

question

Flat Tax

answer

A proportional tax on individual income after a specified threshold has been reached

question

Vat Tax

answer

Tax placed on the value that manufacturers add at each stage of production

question

Excise Tax

answer

General revenue tax levied on the manufacture or sale of selected items

question

Establishing the Federal Budget

answer

1. Office of Management and Budget is responsible for preparing the federal budget. The President's budget is only a request; congress can approve, modify, or disapprove it 2. Goes to the House of Reps, divides and breaks down into categories and assigns each to a separate House subcommittee for discussion 3. After House version is approved it then goes to the Senate. The Senate can either draft a new one or approve the House's version (then back to House) 4. The House and Senate often seek advice from the Congressinal Budget of Office. The CBO is a nonpartisan congressional agency that evaluates the impact of legislation and projects future revenues and expidentures that will result from legislation. 5. If both the House and Senate approve the compromise bill, they send it to the President for signing who will sign or veto it

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