questions, answers and graphs for econ 5,6,7 test.
Law of Supply
Tendency of suppliers to offer more of a good at a higher price.
2 things that create the law of supply
1. Firms changing their level of production.
2. Firms entering or exiting the market.
Supply Schedule and Graph:
Market Supply Schedule and Graph:
Supply and Elasticity:
A way of measuring quantity supplied reacts to a change in price.
Elasticity of Supply and time:
Tells how firms will respond to changes in a price of a good.
Marginal Product of Labor:
Change in output from hiring one more worker.
Increasing Marginal Returns:
Level of production in which the marginal product of labor increases as the number of workers increases.
Diminishing Marginal Returns
A level of production in which the marginal product of labor decreases as the number of workers increases.
2 types of cost with examples
1. Fixed Cost; Costs that don't change, example; Buildings.
2. Variable Costs; Costs that rise and fall depending on issue, example; Electricity.
What are input costs?
What is its effect on supply?
What: Any change in the cost of an input used to produce a good.
Effect: An increase in cost of an input means that supply falls at all levels, when cost decreases then price goes up.
Technology's impact on supply:
Better technology lowers costs and increases supply at all price levels.
3 government influences on supply:
1. Subsidies, shifts to the right:
2. Taxes, shifts to the left:
3. Regulation, shifts to left:
Supply and Demand Schedule:
Graph it with the equilibrium:
Pros and Cons and Example fore Rent Control:
Price Ceiling is a maximum price set by law that sellers can charge for a better service.
Rent Control Ex: Was introduced to prevent inflation during the housing crisis during the 1940s.
Pros: Great for sellers because apartments were high in demand.
Cons : Wait lists, discrimination and bribery.
What is Price floor and Minimum Wage?
Graph Minimum Wage:
Price Floor: Minimum price for a good or service.
Minimum Wage: Sets a minimum price that an employer can pay a worker for an hour of labor.
Graph minimum wage:
3 Price Factors that shift to the left or right:
1. New Technology
2. New government tax and subsidies
3. The change in price of raw materials.
Graph the falling supply curve in the CD Market:
How does excess demand turn into excess supply include example:
Graph shift in demand with fads:
From time to time there is a trendy toy that every kid has to have. For instance, Beanie Babies were hip and stylish by the early 90s. Beanie Babies were high in demand due to their exclusive refreshed designs every month. Although each beanie baby was at an affordable at $4.99 it was hard to find a specific one in shortage. Search costs, bidding, and holding fees within retailers were expensive. When a fad passes its peak, demand can fall as quickly as it rose creating excess supply.
Shift in Demand Graph:
3 advantages of prices:
Where goods are bought and sold illegally.
4 conditions for perfect competition:
1. Buyers and sellers participate in the market.
2. Sellers offer identical products.
3. Buyers and sellers are well informed about products.
4. Buyers and sellers are able to enter and exit the market freely.
Name 2 barriers to entry:
1. Start up costs
Dominated buy a single seller.
Economies of Scale
Factors causing producer's average cost per unit to fall as output rises.
Natural monopoly and provide an example:
Market that runs most efficiently when one firm supplies all of the output, example; Public Water.
Government Monopoly and provide example:
A monopoly created by the government, example; National Parks.
2 examples of price discrimination:
1. Senior/student discounts
2. Discounted airline fares
3 limits to price discrimination:
1.Limited market power
2. Distinct customer groups
3. Difficult resale
4 Conditions of Monopololistic Competition:
1. There are many firms
2. Few artificial Barriers to Entry
3. Slight control over price
4. Differentiated products
3 Business Practices that concern the government:
1. Price Leadership
3. Cartel; Not long term, and people cheat to get ahead.
Market dominated by a few firms.
4 examples of Nonprice Competition:
1. Physical Characteristics
3. Service Level
4. Advertising, image or status
Sherman Antitrust Act and provide examples for the strategies:
At first it wasn't successful because it didn't have much teeth. It later succeeded due to2 strategies:
1. Buy out competitors
2. If chain wants to sell certain products you'd have to buy 3 or 4 products to sell.
Example: If Wal-Mart were to sell tennis rackets they would have to also sell the same company's tennis balls, wrist bands and head bands, etc...
The reason for AT&T's break up:
- In 1982, the government broke up AT&T into 7 regional phone companies.
- Government stepped in when AT&T used its legal monopoly in local phone service to take control of other markets for long distance phone calls and communications equipment.
- Jump forward, now there are numerous firms that provide a long distance service.
In return, this makes the market more competitive which then gives consumers a lower price.
Why didn't the government support the office supply store merge?
- Let's say the merger was between Staples and Office Depot.
- The Justice Department observed that Staples charged less in cities where Office Depot also had stores.
- From this the Federal Trades Commission convinced the courts that the merger would hurt competition and force customers to pay higher prices.
Brief History of the Airline Industry:
- 1978, President Carter deregulated the airline industry.
- Competition began to increase which led to lower prices.
- Next, many of the busiest airports had only one dominant airline and they charged higher fares.
- Early 2000s, there was over expansion and labor costs rose which cut profits.
- Suddenly, there were terrorist attacks and even more economic problems which led to less people flying.
- Revenue went down because costs of security and insurance rose.