MIDTERM Part 2

Question 1

The incentives and constraints in a competitive market are the same as those in a market where one company enjoys a monopoly.

Answer 1

False

Question 2

Which of the following statements about corporations is true?

Answer 2

Corporation owners are personally responsible for the financial obligations of the organization.

Question 3

A monopoly means…

Answer 3

literally one seller

Question 4

How are monopolistic firms detrimental to the economy?

Answer 4

limited consumer choice

Question 5

Monopolies are fairly easy to maintain in a free market setting.

Answer 5

False

Question 6

Individual members of cartels have incentives to cheat.

Answer 6

True

Question 7

A regulatory commission would ideally set prices where they would have been if there were a competitive marketplace.

Answer 7

True

Question 8

Which of the following is a reason that a regulatory commission would have trouble setting competitive marketplace prices?

Answer 8

Only the actual functioning of a market itself could reveal such high prices.

Question 9

Anit-Trust laws are, in theory, intended to…

Answer 9

prevent monopoly and other non-competitive conditions and prices higher than competitive market prices.

Question 10

The key to monopoly is not market share, even when it is 100%. The key to monopoly is

Answer 10

The ability to keep other competitors out.

Question 11

There is no difference between what is detrimental to competition and what is detrimental to competitors.

Answer 11

False

Question 12

The % of a market “controlled” by this or that company ignores the roles of substitutes.

Answer 12

True

Question 13

Profits and losses are just as important for the economy as a whole as they are for individual businesses.

Answer 13

True

Question 14

Which of the following statements about profits is NOT true?

Answer 14

Profits are wasteful overcharges that add to the inherent cost of production.

Question 15

The term “economies of scale” refers to a situation where…

Answer 15

There are lower costs per unit of output as the number of units increases.

Question 16

What is the opposite of “economies of scale”?

Answer 16

Diseconomy of scale

Question 17

Costs or savings incurred by businesses are AUTOMATICALLY passed on to the consumers…

Answer 17

False

Question 18

Getting rid of middlemen will ALWAYS increase efficiency….

Answer 18

False

Question 19

What is economics?

Answer 19

The study of the use of scarce resources which have alternative uses.

Question 20

How is wealth created?

Answer 20

Converting raw materials into a finished product that is valued more than the sum of its parts.

Question 21

How is economic activity coordinated under different economic systems?

Answer 21

Through supply and demand or central planning by a government authority in a command economy.

Question 22

How do we talk about costs in this class?

Answer 22

The corporate expense incurred for making a product or providing a service.

Question 23

What is the purpose and functioning of prices?

Answer 23

It sends out a signal to buyers and sellers of the value of those goods and services.
It also helps producers decide which goods to produce and how much to make.

Question 24

What is the purpose and functioning of price controls?

Answer 24

Price ceilings and floors were created to prevent inflation and shortages of suplies.

Question 25

How do prices fluctuate in a market economy?

Answer 25

Supply and Demand -When Supply increases, demand decreases Equilibrium -When supply and demand are equal Seasonality Improved Technology -Decreases production costs; increases supply, and leads to lower prices

Question 26

How do companies become large and profitable?

Answer 26

-Quickly taking opportunities and taking risks -Adapting to change - Developing new products and services that meet consumer's demands

Question 27

What are economies of scale?

Answer 27

The cost advantage experienced by a firm when it increases its level of output.

Question 28

What are diseconomies of scale?

Answer 28

When a company/business grows so large that the costs per unit increase.

Question 29

How are goods and services valued?

Answer 29

It is dependent on the scarcity of the good or service and the demand of the consumers.

Question 30

What are the different incentives and constraints in different economic systems and situations?

Answer 30

Incentives: -Pay Increase -Reduction in pay or bonuses -Lost possession of job -Growth in business Constraints: -Inflation -Interest Rates -Unemployment rates

Question 31

What are corporations?

Answer 31

-Defined by their limited liability - Owned by thousands or millions of people through stocks and shares

Question 32

What are monopolies? Oligopolies? Cartels?

Answer 32

Monopolies only exist when a single seller of some product or service exists in a society. Oligopolies are when a number of sellers work together that there is basically one seller. Cartels are when companies agree to not compete with each other in order to keep high prices.

Question 33

What are the outcomes of monopolies?

Answer 33

Higher prices -There is no competition so prices can remain high Lower Quality Less Innovation -No incentive to create new ideas

Question 34

What are some of the differences between market and non-market economies?

Answer 34

Market Economy - Prices are set by supply and demand - Individuals/businesses make production/consumption decisions based on self interest - Limited government role Non-Market Economy -Prices are set by a central authority -These decisions are made by the central authority - Large government role