Economic Concepts Quiz

Adverse selection occurs when one party in a transaction has more information than the other, leading to an imbalance of information. In the insurance industry, this can occur when individuals with higher risks are more likely to purchase insurance than those with lower risks. For example, someone with a history of health problems might be more likely to buy health insurance than someone who is generally healthy. As a result, the insurer ends up covering more claims than anticipated, potentially leading to higher premiums for everyone.

The breakeven point is the level of sales or production where a business's total revenue equals its total costs. It determines the minimum level of activity required to avoid losses. Businesses can use the breakeven point to assess the profitability of different products, pricing strategies, or expansion plans. By understanding the breakeven point, companies can make informed decisions about pricing, production levels, and investments.

The contestable market model suggests that even with few competitors, a market can be highly competitive if there is a potential for new entrants to easily enter and exit the market. This model assumes that barriers to entry are low, allowing for frequent challenges to existing firms. Unlike traditional models of perfect competition, the contestable market model emphasizes the role of potential competition and its impact on market dynamics.

<p>Core competencies are the unique capabilities and skills that give an organization a competitive advantage. These can include technological prowess, innovation, customer service excellence, or a strong brand. By focusing on their core competencies, companies can differentiate themselves from competitors, create value for customers, and achieve sustainable success in the marketplace.</p> Signup and view all the answers

<p>A cost center is an organizational unit within a company that is primarily responsible for controlling and minimizing expenses, without directly generating revenue. Examples include human resources, accounting, and IT departments. While cost centers don't directly contribute to revenue, they play a vital role in ensuring efficient operations, reducing waste, and supporting the company's profit-making units.</p> Signup and view all the answers

<p>In the job market, signalling refers to the observable actions taken by job applicants to convey their skills and qualifications to potential employers. Applicants might use their education, work experience, certifications, or volunteer activities to signal their competence and suitability for a particular position. For example, a candidate applying for a software development role might highlight their experience with specific coding languages or their contributions to open-source projects.</p> Signup and view all the answers

<p>The cost approach to production planning focuses on determining the most cost-effective production configuration to achieve a desired level of output. It involves analyzing different production methods, materials, and resource allocation to identify the most economical option. For example, a manufacturing company might use the cost approach to decide between producing a product in-house or outsourcing its production to a third-party supplier, considering factors like labour costs, material costs, and transportation expenses.</p> Signup and view all the answers

<p>A demand function is a mathematical relationship between the price of a good or service and the quantity demanded by consumers. It shows how the quantity demanded changes in response to variations in price, holding other factors constant. This function helps businesses predict how sales might be affected by changes in price, allowing them to make informed decisions about pricing strategies.</p> Signup and view all the answers

<p>Minimum Efficient Scale</p> Signup and view all the answers

<p>When Marginal Revenue equals Marginal Cost (MR = MC).</p> Signup and view all the answers

<p>Market Equilibrium</p> Signup and view all the answers

<p>Price Inelastic Demand</p> Signup and view all the answers

<p>Producer Surplus</p> Signup and view all the answers

<p>Per Unit Cost Reduction</p> Signup and view all the answers

<p>The charging of different prices to different customers.</p> Signup and view all the answers

<p>Shutdown Rule</p> Signup and view all the answers

<p>Tournament Theory</p> Signup and view all the answers

<p>Transfer Price</p> Signup and view all the answers

<p>Theory of the Firm</p> Signup and view all the answers

<p>Theory of the Consumer</p> Signup and view all the answers

<p>Transaction Cost Economics</p> Signup and view all the answers

<p>Time Value of Money</p> Signup and view all the answers

<p>FC / (Selling Price per unit - VC per unit)</p> Signup and view all the answers

<p>Q = a - bP</p> Signup and view all the answers

<p>Elasticity of demand is a measure of the sensitivity of changes in quantity demanded of a good or service to changes in its price. Businesses use this concept to understand how price changes can impact sales volume and profitability. They can then use this information to set prices to either increase revenue or maintain market share.</p> Signup and view all the answers

<p>Forward integration occurs when a company expands into activities that are closer to the end consumer in the value chain. An example would be a car manufacturer acquiring a car dealership network, thus controlling both production and distribution.</p> Signup and view all the answers

<p>The free rider problem occurs when individuals or businesses benefit from a good or service without contributing to its cost. This can impact a company's success by reducing revenue and making it difficult to recoup investments.</p> Signup and view all the answers

<p>Horizontal integration is a strategy where a company expands by acquiring or merging with competitors in the same industry. For example, Facebook's 2012 acquisition of Instagram can be considered horizontal integration in the social media market.</p> Signup and view all the answers

<p>Inelastic demand indicates that the quantity demanded for a product changes very little, even when the price changes significantly. This means customers are less sensitive to price fluctuations. For marketers, understanding whether their product has elastic or inelastic demand is crucial for setting prices that maximize profit.</p> Signup and view all the answers

<p>Implicit costs represent the opportunity cost of using a resource for one purpose over another. They are not reflected in cash outlays but are relevant in economic decision making because they represent potential lost profits.</p> Signup and view all the answers

<p>Learning by doing describes the increase in efficiency and productivity that comes from accumulated experience. It is important for a business's competitive advantage as it can lead to lower production costs, faster production times, and a higher quality product, ultimately allowing a company to win in the marketplace.</p> Signup and view all the answers