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Chapter 4, 5, 6, and 7 Test Review

What almost always happens to quantity demanded as price drops? - demand increases What impact to increasing income have on demand? - it increases purchasing power which increases demand What are two other factors that greatly impact overall demand? - market size (population), tastes and preferences, prices of related goods, consumer expectations What is the substitution affect? - consumers will purchase a lower price substitute if its effective What is the name for reduced satisfaction achieved from continued consumption of a particular good - diminishing marginal return What does elasticity of demand measure? - the impact on demand of a price change in a particular good If demand for a good changes little with changes in price then demand is elastic or inelastic? - inelastic What are three key factors that affect elasticity? - availability of substitutes, relative importance, need or want, how quickly price changes over time What does a supply schedule measure? - the amount supplied at a given price If producers are willing to produce a much larger quantity with a small increase in price supply is considered elactic or inelastic? - elastic What are two factors that cause shift in supply? - price of resources, technology, competition, price of related goods, government activity What is a firm experiencing if it becomes more productive (and efficient) by adding more workers? - increasing marginal returns What are fixed production costs? Variable productions costs? - costs that don't change with quantity produces (factory, equipment, office rental); variable costs change with quantity (workers, supplies, etc.) What is the amount of additional cost required to produce one more unit? - marginal cost What is the amount of additional revenue gained by producing one more unit? - marginal revenue What will suppliers do when there is excess demand? Excess supply? - raise the price to match equilibrium - lower their price to match equilibrium What is it called when a few major firms dominate a particular market? - an oligopoly What is it called when an oligopoly colludes to set prices and ruin competition? - a cartel What is it called when a monopolist charges different prices to different consumers? - price discrimination - kids stay free, discount for early purchase, etc. What is a "price war"? - when members of an oligopoly stop colluding and try to undersell each other with increasingly lower prices Where is market equilibrium? - where the demand curve hits the supply curve What is a shortage? Surplus? - a shortfall in the amount supplied, an excess of the amount supplied What are two conditions that must be present for a monopoly to exist? - single seller, no substitutes, difficult market entry Name two different types of monopoly. - natural, geographic, technological, and government What type of monopoly occurs when competition would drive prices per unit production? - natural monopoly Identify two factors that place price pressure on monopolies. - consumer demand, potential competition, and government regulation What system is used by consumers and producers to communicate? - the price system What are two advantages of the price system? - flexibility, efficiency, choice, incentives What are two limitations of the price system? - can't include externalities, hard to price public goods, general instability What are two of the major criticisms of rationing? - unfair, too expensive, creates black markets Does deregulation increase or decrease government control of business? - decrease How does deregulation effect companies? - it decreases the amount of government restrictions on the business Selling a product below cost to drive competitors out of the market is: - predatory pricing What are four Conditions of Monopolistic Competition? - many firms, few artificial barriers to entry, slight control over price, differentiated products What is the name for a situation in which many buyers and sellers compete under the laws of supply and demand? - perfect competition What is the opposite of perfect competition? - monopolistic competition What is product differentiation? - monopolies using small differences and marketing campaigns to set their products apart What is the name for the practice of competition based on brand identity rather than price? - non-price competition Give an example of economies of scale - hydroelectric plant and telephone service Give an example of price ceiling and price floor Give examples of how controls can have negative side effects What is the primary purpose of anti-trust legislation? What is the name for a group of