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What is Microeconomics
the study of individual choice, and how that choice is influenced by economic forces
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What is Macroeconomics
the study of the economy as a whole
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What is the problems with equal income distribution
- • it steal from people against their will (taxes) for no intrinsic benefit
- • provides no incentives for people to work hard and improve their skills
- • leads to inefficient government policies
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What the invisible hand is
The invisible hand is the price mechanism, the rise and fall of prices that guides our actions in a market.
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Define market force
A market force is an economic force that is given relatively free rein by society to work through the market.
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What are market forces
Market forces ration by changing prices. When there’s a shortage, the price goes up. When there’s a surplus, the price goes down.
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What decide market forces
Social, cultural, and political forces play a major role in deciding whether to let market forces operate
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What is socialism
an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
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What is Capitalism
An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
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What is Feudalism
An economic system in which traditions rule.
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What is Economic Policy
An action (or inaction) taken by government to influence economic actions.
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Name two economic policies
Laissez-faire
behavioral economic policy
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What is Laissez-faire
is an economic policy of leaving coordination of individuals’ actions to the market
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What is behavioral economic policy
economic policy based upon models using behavioral economic building blocks that take into account people’s predictable irrational behavior
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Who determine economic policies?
Politicians
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What three things comprise our market economy
Businesses, households, and government
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What are the three taxes
- personal income tax,
- the corporate income tax,
- the Social Security tax.
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Three causes of market failures
- externalities,
- public goods,
- imperfect information.
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what is an entrepreneur
An entrepreneur is an individual who sees an opportunity to sell an item at a price higher than the average cost of producing it.
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What is profit
What’s left over from total revenues after all the appropriate costs have been subtracted. That is, Total revenue 2 Total cost. Also, a return on entrepreneurial activity and risk taking.
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what are monitoring costs
Monitoring costs are the costs incurred by the organizer of production in seeing to it that the employees do what they’re supposed to do.
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What are the different tax structures
Income taxes
Sales taxes,
Property taxes,
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what is social security
a social insurance program that provides financial benefits to the elderly and disabled and to their eligible dependents and/or survivors.
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What is a Surplus
An excess of revenues over payments
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Substitute
A good that can be used in place of another good.
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What is a Market structure
- refers to the physical characteristics of the market within which
- firms interact.
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what is a monopolistic competition
a market structure in which there are many firms selling differentiated products and few barriers to entry
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oligopoly
a market structure in which there are only a few firms and firms explicitly take other firms’ likely response into account
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Perfectly competitive market
a market in which economic forces operate unimpeded.
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Monopoly
A market structure in which one firm makes up the entire market.
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A labor market
a factor market in which individuals supply labor services for wages to other individuals and to firms that need (demand) labor services
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Horizontal Merger
The combining of two companies in the same industry
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Vertical Merger
A combination of two companies that are involved in different phases of producing a product
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Acquisition
A transaction in which a company buys another company and the purchaser has the right of direct control over the resulting operation
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Joint venture
A contractual agreement joining together two or more parties for the purpose of executing a particular business undertaking
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what is production
The transformation of factors into goods and services.
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Fixed Costs
Costs that are spent and cannot be changed in the period of time under consideration.
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Variable Costs
Costs that change as output changes
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Economies of scale
economies that occur because of increases in the amount of one good a firm is producing.
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Economies of scope
occur when producing different types of goods lowers the cost of each of those goods.
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A price taker
is a firm or individual who takes the price determined by market supply and demand as given
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Who are price takers.
Both buyers and seller
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Price makers
set the price
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Who are price makers
Firms
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These are Barriers to entry
social, political, or economic impediments that prevent firms from entering a market.
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what is a duopoly
an oligopoly with only two firms.
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Implicit Collusion
A type of collusion in which multiple firms make the same pricing decisions even though they have not explicitly consulted with one another.
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To prove a collusion is Difficult
Difficult to prove
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Monopolistic competition makes collusion
difficult to prove
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Oligopoly makes collusion
easier to prove
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characteristic of informal collusive behavior is
that prices tend to be sticky—they don’t change frequently.
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what is a patent
Legal protection of a technological innovation that gives the owner of the patent sole rights to its use and distribution for a limited time.
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Tariffs
taxes governments place on internationally traded goods —generally imports.
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An embargo
is a total restriction on the import or export of a good.
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The Clayton Antitrust Act is
a law that made four specific monopolistic practices illegal when their effect was to lessen competition
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The Federal Trade Commission Act is
a law that made it illegal for firms to use “unfair methods of competition” and to engage in “unfair or deceptive acts or practices,”
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A public good
is a good that is nonexclusive and nonrival. (education, defense, roads, and legal systems) government provided
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Private good
only benefit to the person buying the good
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private goods you sum demand curves
demand curves are sum horizontally;
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public goods you sum
sum demand curves vertically.
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Antitrust policy
is the government’s policy toward the competitive process.
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Sherman Antitrust Act
is a U.S law designed to regulate the competitive process.
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Price discrimination
is selling identical goods to different customers at different prices.
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Example of Price Discrimination
- Ex. Movie theaters give discounts to senior citizens and children
- Ex. Airline Super Saver fares include Saturday-night stay overs.
- Ex. Automobiles are seldom sold at list price.
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Law of supply
states that quantity supplied is positively related to price, the slope of an equation specifying a supply curve is positive
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The law of demand
states that as price rises, quantity demanded declines
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Price and quantity are negatively related,
so a demand curve has a negative slope.
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The laws of supply and demand affect
- relative prices, not nominal prices. are affected
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Shift factors
income or price of another good, shift the entire demand curve.
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Five important shift factors of aggregate demand
- foreign income
- exchange rate fluctuations
- the distribution of income,
- expectations,
- government policies.
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Anything that changes factor costs will be a shift factor of supply.
True
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What changes shift factors?
- • Changes in input prices.
- • Productivity.
- • Import prices.
- • Excise and sales taxes.
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What is a price ceiling
is a government-set price below the market equilibrium price.
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Surplus An excess of revenues over payments.
An excess of revenues over payments.
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Supply Curve
A graphical representation of the relationshipbetween price and quantity supplied.
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Equilibrium
A concept in which opposing dynamic forcescancel each other out.
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Equilibrium Price The price toward which the invisiblehand drives the market.
The price toward which the invisiblehand drives the market.
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Partnership
A business with two or more owners.
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Sole Proprietorship A business that has only one owner
A business that has only one owner
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Business A private producing unit in our society.
A private producing unit in our society.
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Example of opprtunity cost
- Consumer choice
- Cost of capitol
- Production possibilities
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Define the concept of opportunity costs
this concept applies to all aspects of life and is fundamental to understanding how society reacts to scarcity.
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Is expressed in relative price, the price of one choice is relative to another
opportunity costs
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The law of diminishing control
is the observation thatafter a regulation is implemented, as time progresses, itbecomes less and less effective because firms find waysaround the regulations.
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