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. diminishing marginal return
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?

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. increasing marginal returns
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 don’t 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. price discrimination kids stay free, discount for early purchase, etc.
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, & gov’t 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?
can’t include externalities, hard to price public goods, general instability

30. rationing, World War II & Energy Crisis
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?

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. non-price competition
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. black markets, create shortages (e.g. rent control - housing)
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