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Economics Ch

The Choices Were: loss leader price leader price maker Correct Answer A firm that has monopoly power is a: Your Answer : price maker Correct Answer : price maker For a perfectly competitive firm, price is always identical to Your Answer : marginal revenue Correct Answer : marginal revenue marginal cost marginal revenue total revenue average total cost Perfect competition is not characterized by Your Answer : sizable barriers preventing new firms from entering the market Correct

Answer : sizable barriers preventing new firms from entering the market The Choices Were: sizable barriers preventing new firms from entering the market a large number of sellers and buyers in the market Economics Chi 5 & 8 By envisions a standardized product Private goods are not subject to the principle of rival consumption. 2. Opts Your Answer : False Correct Answer : False True False True / False I The government may step in to ensure that buyers and sellers have reliable information. True / False 1 2. Pats Your Answer : True Correct Answer : True

Public goods are not subject to the exclusion principle. True / False 1 2. Pats A spillover effect is a cost or benefit imposed on someone other

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than the actual consumers. True / False 1 2. Pats To help correct for the problem of economic inequality in a market economy, the government provides transfer payment programs for people in need such as unemployment compensation and food stamps. True / False 1 2. Pats Among the business practices outlawed by the Clayton Act are interlocking directorates, price discrimination, and tying contracts that substantially lessen imputation.

True / False 1 2. Pats Antitrust policy is an attempt to promote a market environment that results in increased competition and a reduction in anti-competitive behavior that harms Because a perfectly competitive firm supplies a very small share of the market output, it has to take or accept the price that is determined in the market. True / False 1 2. Pats Dabbers, a producer of diamonds, is an example of a perfectly competitive firm. Incorrect Answer* A monopoly is a market structure characterized by a single supplier of a good or reverie for which there are many substitutes.

True / False 1 2. Pats If total revenue exceeds total variable cost, a firm should continue to produce in the short run because all of its variable costs and some or all of its fixed costs can be paid out of revenue. True / False 1 2. Pats A perfectly competitive market is characterized by insignificant barriers to entry or exit, many sellers and buyers, a standardized product produced by firms in the market, and perfect information among sellers and buyers. True / False 1 2. Pats Figure 5. Cost and Demand Conditions of a Perfectly Competitive Firm Refer to Figure

Economics ch

Chapter 6 Balancing the Market The point at which quantity supplied come together is known as Equilibrium Market Disequilibrium If the market place or quantity supplied is anywhere but at the equilibrium price, the market is in a state called disequilibrium Excess Demand Occurs when quantity demand is more than quantity supplied Excess Supply Occurs when quantity supplied exceeds quantity demand The interaction between buyers and sellers (Market Forces) will always push the market back toward equilibrium Price Ceilings In some cases the government steps in to control prices.

These intervention appear s price ceilings and price floor Price Ceiling is a maximum price that can be legally charged for a good, to keep them from coming too expensive Ex. Rent control reduces quantity and quality of houses Helps some, harms others If the price ceiling is too low, demand will increase but supply while likely from Long waiting list, bribery and discrimination Price Floor A minimum price, set by the government, that must be paid for a good or services Federal government sets base min. Age States can set their own higher The minimum wage so set above the market equilibrium wage rate, the results is a crease in employment

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or an excess supply of labor Price floor are used for many farm products around the world When the price dropped, the U. S gob. Rated by buying excess crops In 1996- US abolished these programs and instead offers farmers emergency financial aid when need Shift in supply Understanding a shift Since market tend toward equilibrium, a change in supply will set market force in motion that lead the market to a new equilibrium price and quantity sold Excess Supply A surplus is a situation in which quantity supplied is greater than quantity demanded. If a surplus occurs, produces reduce prices to sell their products.

This creates new market Equilibrium A Fall in Supply The exact opposite will occur when supply is decreased. As supply decreases producers will raise there prices Shift in demand Excess Demand A shortage is a situation in which quantity demands greater than quantity supplied. Search Cost Search cost are financial and opportunity cost consumers pay when searching for a good or service. Fall in demand When demand falls, suppliers respond by cutting prices, and a new market equilibrium is Dunn The Role to Prices in a Free Market

Prices serve a vital role in a Free Market Economy Prices help move land, Labor and capital into the hand of producers, and finished goods in to the hand of buyers Prices create efficient resources allocation for producers and a language that both the consumer and producers can use Advantages of Prices Price provide a language for buyers and sellers Prices as an Incentive Prices communicate to both buyers and sellers whether goods and services and scarce or easily available.

Prices can encourage or discourage production. Signals Think of prices as a traffic light. A relatively high price is a green light telling reducers to make more. A Relatively low price is a red light telling producers to make less Flexibility In many markets, prices are much more flexible than production levels.

They can be increased or decrease to solve problems of excess supply or demand Supply Shock- A sudden change in supply EX gas after hurricane Price system is free Unlike Central Planning, a distribution system based on prices costs nothing to Wide Choices of Goods Benefits of a market based economy: Diversity of goods and services Command economies like that of china or the former USSR usually restrict production to limit sots Rationing During WWW, the u. s. Was forced to institute prices controls and rationing in order to ensure that certain items did not become to expensive for the average Americans. s might have happened with the prices- based systems Rationing does mean that a certain goods won’t always be available The Black Market A market where things are sold illegally Efficient Resources allocation A market system, with its fully change pre ices, ensure that resources go to the uses that consumers value most highly The price-based system ensure that resources use ill adjust to the change I n demand Profit incentives Business are motivated by profit to provide more for consumers Market Problems Imperfect competition Between firms in a market can affect prices and consumer decisions Spillover Costs AKA Externalities, are cost of production such as air and water pollution, that “spill over” onto people who have no control over how much of a good is produced If buyers and sellers have imperfect information on a product they may or may not make the best purchasing or selling decision Non price competition Characteristics of goods

Simplest way for a firm o distinguished its product new size color and shape Location A convenient store in the middle of the desert differentiate its products simple by being a hundred of miles away from the nearest competitor Service Level Some sellers can charge higher prices because they offer customers a higher level or service Advertising Image Firms also use advertising to create apparent difference between their own offerings and other products in the marketplaces Price profit and and output Price will be higher than they souls be in perfect competition because firms have small amount of power to raise prices. But prices will be lower than in a true monopoly Output usually falls somewhere Between that of perfect competitive and monopolistic markets Profit when nonpolitical competitive firms can earn profits in the short run Cost and Variety Unapologetically firm cannot produce at the lowest garage price dir to the number of firms in the market Oligopoly describe a market dominate by a few large profitable firms (an industry with at least 4 firms hat control 70-80% of the output Barriers to entry Oligopoly Can form with sign Oligopoly Price Leadership

Sometimes the market leaders in an oligopoly can start a round of price increase or cut Rice war- which is beneficial to consumers PC Collision- AN agreement among member of an oligopoly to set prices and reduction Price Fixing is an agreement among firms to sell at the same or the similar process collision is illegal in the US CArtels- Is a formal organization of procures to agree to coordinate price ND production PC wheat shares of stocks MS Jeans and books Oligopoly cars and movie studios Monopoly public water section 4 MARKET POWER Market Power- Is the Ability if a Company to control Prices and Output Markets Dominated by a few Large firms tend to have higher prices and lower output then market with many sellers To control prices and output like a monopoly firms. Predatory pricing sets the market prices below cost levels for the short term to drove out competitors Government and Competition Government policies keep firms from controlling the price and supply of Important goods. Antitrust Laws are laws that encourage competition in the marketplace.

Sherman Antitrust Act of 1890- outlaws any trust or combination that limits interstate commerce Regulating Business Practices rent NAS the power to regulate business practice to there practices give too much power to a company that already has competitors Microsoft Sacs In 1997, the Dept. Of Justices accused Microsoft of using a monopoly in operating system to control the Market for barriers Microsoft insisted hat computer manufactures that sold it Operating system system its browser Microsoft defense Verdicts Against Microsoft and Microsoft Appealed 2001, Pres. Bush settled the case: Microsoft could link its browser to its operating system but could not force computer manufactures to provideџ

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