40 Questions
What type of control does a business have when it cannot charge any price it wants due to government regulation?
No control
What is the result of fierce competition in a market?
Limited control over prices
What is the term for a situation in which a business has control over the price of its product?
Price Maker
In a regulated market, what is the goal of government intervention in pricing?
To protect consumers from high prices
What is the term for a market structure in which there is only one buyer or seller?
Monopoly
Why is collusion among companies illegal?
It leads to higher prices for consumers
What is the term for a market structure in which there are many buyers and sellers, and perfect knowledge about the market?
Perfect Competition
What is the result of differentiation via marketing?
Premium prices for products
What is the cost that remains the same even if no products are sold?
Fixed cost
What is the formula for calculating Total Cost?
Fixed Cost + Variable Cost
What is the average cost when 2 units are produced?
9
What is the marginal cost of producing one extra unit?
The change in Total Cost
What is the total revenue when 4 units are produced?
40
What is the assumption made in the production cost and revenue table?
All units produced are sold
What is the marginal revenue when one extra unit is sold?
The change in Total Revenue
What is the formula for calculating Average Fixed Cost?
Fixed Cost divided by the number of units produced
What is one of the benefits of price discrimination?
It allows people to do things they could otherwise not afford
What happens if a dominant business lowers its prices too significantly?
The competition commission will step in
What is one of the factors that affects demand?
Level of income
What happens to the demand curve when the price of a substitute product increases?
It shifts to the right
What is the effect of an increase in the price of a complementary product on the demand for the original product?
The demand decreases
What is a result of a decrease in the supply of a product?
The supply curve shifts to the left
What is one of the factors that affects supply?
Changes in production costs
What happens to the supply curve when there is a technological advance?
It shifts to the right
What is the primary characteristic of a public good?
It is non-rivalrous and non-excludable
Why do public goods tend to be under-produced in a market economy?
Because of the free-rider problem
What is a characteristic of a merit good?
It is thought to increase the welfare of society
What is a demerit good?
A good that is thought to decrease the welfare of society
What is a consequence of imperfect competition in a market?
Resources are under-allocated to the production of certain goods
What is a characteristic of asymmetric information?
Buyers and sellers have incomplete information about the market
What is a way in which the government can address the issue of demerit goods?
By regulating their consumption
What is a way in which the government can address the issue of merit goods?
By providing subsidies for their production
What is the characteristic of products with a PES greater than 1?
They are easy to make and distribute
What is the term for the responsiveness of change in quantity demanded to a change in consumer's income?
Income Elasticity of Demand
What type of goods are steak, champagne, and brand-name items?
Elastic goods
What is the characteristic of products with a PES equal to 1?
Their supply can easily be increased or decreased
What is the sign of the income elasticity of demand for normal goods?
+ve
What type of goods are bread, milk, and petrol?
Essential goods
What is the characteristic of inferior goods?
Demand decreases when income increases
What is the term for the responsiveness of change in quantity supplied to a change in the price of a good?
Price Elasticity of Supply
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.
This quiz assesses understanding of control levels in business management, including no control, little control, significant control, and full control.
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