final!!!!!

Question 1

if deflation is occuring, NGDP is

Answer 1

less than RGDP and the GDP deflator is less than 100

Question 2

total expenditure by consumers does change with a change in price. but it is dependent on elasticity.

when there is a unit elastic good total expenditure….
when there is inelastic demand……
when there is elastic demand…….

Answer 2

1) no change in expenditure
2) total expenditure increases when the price increases
3) total expenditure decreases when the price increases

this is similar to the idea: raise prices if demand is inelastic. means it is worthwhile to raise price even if people buy less

Question 3

when the fed raises interest rates

Answer 3

the dollar appreciates

more people want to put their money into US assets (banks) which strengthens our currency

Question 4

while transfer payments themselves dont count in GDP, ……. does count in GDP

Answer 4

spending of a transfer payment

ex) spending of SNAP

Question 5

when there is a downturn in the economy, the fed could …. the FFR to stimulate the economy

Answer 5

lower

Question 6

when the fed issues treasury bills, this raises the interest rate. why?

Answer 6

this is like the fed selling a bond. they are getting paid for the bond, leading to a decrease in the circulating money supply.

Question 7

FRED data graphs have shaded regions that represent

Answer 7

recessions

this corresponds to low output (RGDP) and high unemployment

Question 8

market power

Answer 8

extent to which a seller can charge a higher price without losing sales

Question 9

perfect competition

Answer 9

1) all firms sell identical good
2) there are many buyers and sellers, who are relatively small

Question 10

monopoly

Answer 10

only seller in the market

Question 11

oligopoly

Answer 11

market dominated by a handful of sellers

Question 12

monopolistic competition

Answer 12

market w many small businesses competing, each selling differentiated products

Question 13

fewer competitors means your product will be

Answer 13

more unique

Question 14

most businesses are

Answer 14

imperfectly competitive

Question 15

imperfect competition

Answer 15

few competitors, somewhat differentiated product

Question 16

increase in competitors = …….. in market power

Answer 16

decrease

Question 17

increase in market power = ……. in independent pricing strategy

Answer 17

increase

Question 18

firm demand curve

Answer 18

shows how Qd changes in response to a firm changing its price

Question 19

perfect comp = ……. demand curve

Answer 19

perfectly elastic

Question 20

monopoly demand curve is

Answer 20

market demand curve

Question 21

marginal revenue

Answer 21

addition to total revenue from selling one more unit

Question 22

marginal revenue reflects the

Answer 22

output effect - discount effect

Question 23

MR =

Answer 23

P- (change in P*Q)

p-(price cut*q that get the price cut)

Question 24

MR characteristics

Answer 24

lies below demand curve
declines faster than demand curve

Question 25

discount effect on a graph

Answer 25

difference between firm demand curve and MR

Question 26

golden rule of profit maximization

Answer 26

produce until MR=MC

Question 27

what does market power lead to

Answer 27

1) higher prices 2) smaller quantity (inefficient) 3) increased economic profit 4) business survival at inefficiently high costs

Question 28

market power is bad because it causes

Answer 28

underproduction

Question 29

competition leads to

Answer 29

decreased Price and increased Quantity

Question 30

competition policy

Answer 30

ensures markets remain competitive anti trust policy

Question 31

anti collusion

Answer 31

limits agreements between rivals that state they will not compete against eachother

Question 32

merger laws

Answer 32

prevents competing businesses from combining to consolidate market power

Question 33

being a monopoly is legal....... is illegal

Answer 33

monopolizing a market

Question 34

policy that minimizes harm from exercizing market power

Answer 34

price ceiling

Question 35

accounting profit

Answer 35

total revenue-explicit financial cost

Question 36

OC of running a business includes

Answer 36

forgone wages and interest

Question 37

economic profit

Answer 37

total revenue-explicit and implicit costs determines if you should open a business

Question 38

average revenue

Answer 38

price (TR/Q)

Question 39

firm demand curve is also the

Answer 39

AR curve

Question 40

MR=DARP

Answer 40

marginal revenue is equal to demand, average revenue, and price

Question 41

average cost

Answer 41

costs per unit total cost/quantity

Question 42

increase in production

Answer 42

spreads fixed costs and raises variable costs

Question 43

profit margin =

Answer 43

price-average cost on a graph: profit margin lies between demand curve and AC curve

Question 44

enter a market if

Answer 44

you expect positive economic profit P>AC

Question 45

new competitors make a market..... but then existing competitors exit which restores........ for those who remain

Answer 45

less profitable profitability

Question 46

exit a market if

Answer 46

you expect negative economic profits AC>P

Question 47

positive economic profit leads to

Answer 47

1) rivals enter market 2) your market power decreases 3) P and Q decrease so that you can compete 4) economic profit decreases

Question 48

negative economic profit leads to

Answer 48

1) rivals exit market 2) your market power increases 3) P and Q increase because theres less competition 4) economic profit increases

Question 49

in the long run:

Answer 49

free entry pushes profits down to zero free exit ensures market wont remain unprofitable

Question 50

in the long run, price =

Answer 50

AC as long as businesses are free to enter and exit

Question 51

at LR equilibrium

Answer 51

ATC just touches the demand curve ATC is below the demand curve when businesses enter and above it when they exit

Question 52

AC matters because it determines

Answer 52

profitability and LR profitability determines barriers to entry

Question 53

demand side barriers to entry (customer lock in)

Answer 53

1) switching costs 2) customer loyalty from goodwill 3) network effects

Question 54

supply side barriers to entry (cost advantages)

Answer 54

1) learning by doing 2) mass production 3) R and D 4) relationships 5) limit access to key inputs

Question 55

gov barriers to entry (gov policy)

Answer 55

1) patents 2) regulations 3) licence reqs 4) lobbying for regulation barriers

Question 56

entry deterrence strategies (scare off rivals)

Answer 56

1) excess capacity 2) financial resources 3) brand proliferation can ensure there are no profitable niches to exploit 4) reputation for fighting

Question 57

when MC=demand

Answer 57

market is perfectly competitive

Question 58

increase in gov spending= ...... in real interest rate

Answer 58

increase higher demand for borrowing equals a higher price for borrowing

Question 59

linear opportunity cost of one unit

Answer 59

OC (1 unit x) = change in good y/change in good x

Question 60

unit elastic means that

Answer 60

the change in the p offsets the change in q price elasticity = -1. percent change in qd= percent change in P in the opposite direction total expenditure will not change

Question 61

in competitive markets reducing trade barriers will never

Answer 61

reduce total surplus

Question 62

firms will exit in the short run when

Answer 62

they cannot cover their variable costs

Question 63

decreasing ATC doesnt necessisarily mean

Answer 63

decreasing MC

Question 64

when the RER>1, the ....... good is more ........

Answer 64

domestic, expensive

Question 65

when the domestic good is more expensive

Answer 65

it means the currency is uncompetitive and that means that imports will increase and exports will decrease

Question 66

lowering the FFR counters

Answer 66

an economic downturn

Question 67

issuing gov bonds or bills

Answer 67

increases money supply which increases inflation

Question 68

efficiency occurs when

Answer 68

MC=MB

Question 69

deadweight loss is not counted in

Answer 69

consumer surplus

Question 70

oligopolies are more concerned with

Answer 70

strategic choices of rivals monopolies and perfectly competitive firms are less concerned with rivals

Question 71

linear OC simplified

Answer 71

(OC good 1)= change in other good/change in good 1