What almost always happens to quantity demanded as price drops

1
What almost always happens to quantity demanded
as price drops?

• it goes up

2
What impact does increasing income have on demand?

• it increases purchasing power which increases
  demand

3
What are two other factors that greatly impact
overall demand?

• market size (population), tastes and preferences,
  prices of related goods, consumer expectations

4
What is the substitution effect?

• consumers will purchase a lower price substitute
  if its effective

5
What is the name for reduced satisfaction
achieved from continued consumption of a
particular good?

• diminishing marginal return

6
What does elasticity of demand measure?

• the impact on demand of a price change in a
  particular good

7
If demand for a good changes little with changes
in price then demand is elastic or inelastic?

• inelastic

8
What are three key factors that affect elasticity?

• availability of substitutes, relative importance,
  need or want, how quickly price changes over time

9
What does a supply schedule measure?

• the amount supplied at a given price

10
If producers are willing to produce a much larger
quantity with a small increase in price supply is
considered elastic or inelastic?

• elastic

11
What are two factors that cause shifts in supply?

• price of resources, technology, competition,
  price of related goods, government activity

12
What is a firm experiencing if it becomes more
productive (and efficient) by adding workers?

• increasing marginal returns

13
What are fixed production costs? Variable
productions costs?

• costs that dont change with quantity produced
  (factory, equipment, office rental) variable
  costs change with quantity (workers, supplies,
  etc.)

14
What is the amount of additional cost required to
produce one more unit?

• marginal cost

15
What is the amount of additional revenue gained
by producing one more unit?

• marginal revenue

16
What will suppliers do when there is excess
demand? Excess supply?

• Raise their price to match equilibrium
• Lower their price to match equilibrium

17
What is it called when a few major firms dominate
a particular market?

• an oligopoly

18
What is it called when an oligopoly colludes to
set prices ruin competition?

• a cartel

19
What is it called when a monopolist charges
different prices to different consumers?
Examples?

• price discrimination
• kids stay free, discount for early purchase, etc.

20
What is a price war?

• when members of an oligopoly stop colluding and
  try to undersell each other with increasingly
  lower prices

21
Where is market equilibrium?

• where the demand curve hits the supply curve

22
What is a shortage? a surplus?

• a shortfall in the amount supplied, an excess of
  the amount supplied

23
What are two conditions that must be present for
a monopoly to exist?

• single seller, no substitutes, difficult market
  entry

24
Name two different types of monopoly?

• natural, geographic, technological, and government

25
What type of monopoly occurs when competition
would drive prices below per unit production
costs?

• Natural monopoly

26
Identify two factors that place price pressure on
monopolies.

• consumer demand, potential competition, govt
  regulation

27
What system is used by consumers and producers to
communicate?

• the price system

28
What are two advantages of the price system?

• flexibility, efficiency, choice, incentives

29
What are two limitations of the price system?

• cant include externalities, hard to price public
  goods, general instability

30
What is the name for officially limiting the
supply of a particular good? When has this
happened in United States history?

• rationing, World War II Energy Crisis

31
What are two of the major criticisms of rationing?

• unfair, too expensive, creates black markets

32
Does deregulation increase or decrease government
control of business?

• decrease

33
How does deregulation effect companies?

• It decreases the amount of government
  restrictions on the business.

34
Selling a product below cost to drive competitors
out of the market is

• Predatory Pricing

35
What are four Conditions of Monopolistic
Competition?

• Many firms, few artificial barriers to entry,
  slight control over price, differentiated products

36
What is the name for a situation in which many
buyers and sellers compete under the laws of
supply and demand?

• perfect competition

37
What is the opposite of perfect competition?

• monopolistic competition

38
What is product differentiation?

• monopolies using small differences and marketing
  campaigns to set their products apart

39
What is the name for the practice of competition
based on brand identity rather than price?

• non-price competition

40
Give an example of economies of scale.

• Hydroelectric plant and telephone service- high
  start up cost, cost per unit decreases as output
  rises.

41
Give an example of a price ceiling and a price
floor.

• ceiling rent war rationing floor subsidies,
  crop prices, min. wage

42
Give two examples of how price controls can have
negative side effects.

• black markets, create shortages (e.g. rent
  control - housing)

43
What is the primary purpose of anti-trust
legislation?

• eliminate imperfect competition

44
What is the name for a group of businesses that
share a name and product line but are
individually owned?

• franchises