Business Management: Levels of Control
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Questions and Answers

What type of control does a business have when it cannot charge any price it wants due to government regulation?

  • Little control
  • No control (correct)
  • Significant control
  • Full control

    • What is the result of fierce competition in a market?

  • Higher prices for consumers
  • Differentiation via marketing
  • Collusion among companies
  • Limited control over prices (correct)

    • What is the term for a situation in which a business has control over the price of its product?

  • Perfect Competition
  • Imperfect Knowledge
  • Price Maker (correct)
  • Price Taker

    • In a regulated market, what is the goal of government intervention in pricing?

    <p>To protect consumers from high prices</p> Signup and view all the answers

    What is the term for a market structure in which there is only one buyer or seller?

    <p>Monopoly</p> Signup and view all the answers

    Why is collusion among companies illegal?

    <p>It leads to higher prices for consumers</p> Signup and view all the answers

    What is the term for a market structure in which there are many buyers and sellers, and perfect knowledge about the market?

    <p>Perfect Competition</p> Signup and view all the answers

    What is the result of differentiation via marketing?

    <p>Premium prices for products</p> Signup and view all the answers

    What is the cost that remains the same even if no products are sold?

    <p>Fixed cost</p> Signup and view all the answers

    What is the formula for calculating Total Cost?

    <p>Fixed Cost + Variable Cost</p> Signup and view all the answers

    What is the average cost when 2 units are produced?

    <p>9</p> Signup and view all the answers

    What is the marginal cost of producing one extra unit?

    <p>The change in Total Cost</p> Signup and view all the answers

    What is the total revenue when 4 units are produced?

    <p>40</p> Signup and view all the answers

    What is the assumption made in the production cost and revenue table?

    <p>All units produced are sold</p> Signup and view all the answers

    What is the marginal revenue when one extra unit is sold?

    <p>The change in Total Revenue</p> Signup and view all the answers

    What is the formula for calculating Average Fixed Cost?

    <p>Fixed Cost divided by the number of units produced</p> Signup and view all the answers

    What is one of the benefits of price discrimination?

    <p>It allows people to do things they could otherwise not afford</p> Signup and view all the answers

    What happens if a dominant business lowers its prices too significantly?

    <p>The competition commission will step in</p> Signup and view all the answers

    What is one of the factors that affects demand?

    <p>Level of income</p> Signup and view all the answers

    What happens to the demand curve when the price of a substitute product increases?

    <p>It shifts to the right</p> Signup and view all the answers

    What is the effect of an increase in the price of a complementary product on the demand for the original product?

    <p>The demand decreases</p> Signup and view all the answers

    What is a result of a decrease in the supply of a product?

    <p>The supply curve shifts to the left</p> Signup and view all the answers

    What is one of the factors that affects supply?

    <p>Changes in production costs</p> Signup and view all the answers

    What happens to the supply curve when there is a technological advance?

    <p>It shifts to the right</p> Signup and view all the answers

    What is the primary characteristic of a public good?

    <p>It is non-rivalrous and non-excludable</p> Signup and view all the answers

    Why do public goods tend to be under-produced in a market economy?

    <p>Because of the free-rider problem</p> Signup and view all the answers

    What is a characteristic of a merit good?

    <p>It is thought to increase the welfare of society</p> Signup and view all the answers

    What is a demerit good?

    <p>A good that is thought to decrease the welfare of society</p> Signup and view all the answers

    What is a consequence of imperfect competition in a market?

    <p>Resources are under-allocated to the production of certain goods</p> Signup and view all the answers

    What is a characteristic of asymmetric information?

    <p>Buyers and sellers have incomplete information about the market</p> Signup and view all the answers

    What is a way in which the government can address the issue of demerit goods?

    <p>By regulating their consumption</p> Signup and view all the answers

    What is a way in which the government can address the issue of merit goods?

    <p>By providing subsidies for their production</p> Signup and view all the answers

    What is the characteristic of products with a PES greater than 1?

    <p>They are easy to make and distribute</p> Signup and view all the answers

    What is the term for the responsiveness of change in quantity demanded to a change in consumer's income?

    <p>Income Elasticity of Demand</p> Signup and view all the answers

    What type of goods are steak, champagne, and brand-name items?

    <p>Elastic goods</p> Signup and view all the answers

    What is the characteristic of products with a PES equal to 1?

    <p>Their supply can easily be increased or decreased</p> Signup and view all the answers

    What is the sign of the income elasticity of demand for normal goods?

    <p>+ve</p> Signup and view all the answers

    What type of goods are bread, milk, and petrol?

    <p>Essential goods</p> Signup and view all the answers

    What is the characteristic of inferior goods?

    <p>Demand decreases when income increases</p> Signup and view all the answers

    What is the term for the responsiveness of change in quantity supplied to a change in the price of a good?

    <p>Price Elasticity of Supply</p> Signup and view all the answers

    Study Notes

    Control Over the Price of a Product

    • A business has no control over the price of a product in a perfect market, as prices are determined by supply and demand.
    • In a perfect market, businesses are price takers, and they cannot charge any price they want.
    • In a monopoly, a business has full control over the price of a product, but this is illegal and can lead to collusion.

    Types of Markets

    • Perfect market: many buyers and sellers, perfect knowledge, and free entry and exit.
    • Imperfect market: any market that does not meet the conditions of a perfect market.
    • Monopoly: a market with only one seller.
    • Oligopoly: a market with only a few sellers.

    Cost and Revenue

    • Fixed cost: costs that remain the same even if production increases or decreases, e.g. rent, salaries, interest on loans.
    • Variable cost: costs that change with production, e.g. product inputs, wages, water, electricity, fuel.
    • Total cost: fixed cost + variable cost.
    • Average cost: total cost divided by the number of units produced.
    • Marginal cost: the additional cost of producing one extra unit of the product.

    Understanding Cost and Revenue Tables

    • A production cost and revenue table shows the total revenue, total cost, marginal revenue, and marginal cost at different levels of production.

    Public Goods

    • Definition: goods provided by the government of a country.
    • Non-excludability: if the good or service is produced for one consumer, no other consumer can be prevented from consuming too.
    • Non-rivalry: if one person consumes the good, it does not prevent someone else from using it too.
    • Free riders: people who consume a public good without paying for it.
    • Problem: public goods tend to be under-produced and the market fails.

    Merit and Demerit Goods

    • Merit goods: goods that are thought to increase the welfare of the individual and society as a whole.
    • Demerit goods: goods that are felt to be harmful to citizens if they consume them.
    • Problem: demerit goods are over-produced and over-consumed, while merit goods suffer under-allocation of resources.

    Imperfect Competition

    • Definition: any market other than a perfectly competitive market.
    • Monopolies and oligopolies restrict supply to maximize profits.
    • Resources are under-allocated to the production of these goods.
    • Government can provide subsidies for the production of merit goods and regulate the consumption of demerit goods.

    Imperfect Information

    • Asymmetric information: buyers and sellers do not have access to the same information.
    • Reasons for price discrimination: allows people to do things they could otherwise not afford, and is controlled by the government when there is a dominant business in the market.

    Demand and Supply

    • Minimum and maximum prices: the government sets prices to regulate the market.
    • Factors affecting demand: level of income, advertising, price of substitutes, price of complements, climate, and fashion.
    • Factors affecting supply: changes in production costs, productivity, quantity of producers, and climate.
    • Shifts in the demand and supply curves: increases or decreases in demand or supply.

    Elasticity of Demand

    • Substitute products: if the price of a substitute product increases, demand for the product will increase.
    • Complementary products: if the price of a complementary product increases, demand for the product will decrease.
    • Price elasticity of demand (PED): measures how responsive the quantity demanded is to a change in price.
    • Income elasticity of demand (YED): measures how responsive the quantity demanded is to a change in consumer's income.

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    Description

    This quiz assesses understanding of control levels in business management, including no control, little control, significant control, and full control.

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