Economics Market Concepts Quiz

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Questions and Answers

What results when prices drop below the point where supply and demand meet?

Disequilibrium

What action would a clothing store owner likely take to sell remaining items from the previous season?

Lower the price of the spring jeans to encourage consumers

What role do producers play in economics?

Producers supply goods and services

What does equilibrium occur when supply and demand coordinate to?

Set prices and production Signup and view all the answers

What is a monopoly?

A single supplier of a good or service Signup and view all the answers

What is the best definition of elasticity in economics?

Elasticity of demand measures how the amount of a good changes when its distribution expands Signup and view all the answers

How do producers differentiate themselves in monopolistic competition?

Product features Signup and view all the answers

Why is pure competition considered an unsustainable system?

Producers cannot make a profit if they keep dropping their prices Signup and view all the answers

How do specialized producers decrease their opportunity costs?

By limiting the types of goods produced Signup and view all the answers

What creates excess supply?

When price moves away from the equilibrium point Signup and view all the answers

What describes a producer with an absolute advantage?

Efficient Signup and view all the answers

What happens to prices when supply is higher than demand?

Prices will fall until the demand rises Signup and view all the answers

If supply for a product is low but demand is high, what needs to happen to achieve equilibrium?

The supply needs to be raised Signup and view all the answers

What is the order of companies from greatest to least comparative advantage in producing small tubes of toothpaste?

4, 3, 1, 2 Signup and view all the answers

What best explains the law of demand?

The quantity demanded by consumers decreases as prices rise, and increases as prices fall Signup and view all the answers

According to the law of supply, how do price and quantity move?

Along a track in the same direction Signup and view all the answers

In the market, what do actions known as incentives affect?

Consumers or producers Signup and view all the answers

Goods that are considered to be needs tend to be?

Inelastic when the price changes Signup and view all the answers

Provide an example of a positive incentive for consumers.

A coupon clipped from a newspaper Signup and view all the answers

Why might a consumer respond to a negative incentive?

It could be a chance to avoid additional charges Signup and view all the answers

What is the difference between profit and revenue?

Revenue is the total amount producers receive after selling a good. Profit is the total amount producers earn after subtracting the production costs Signup and view all the answers

Define marginal cost.

The cost of producing one more unit of a good Signup and view all the answers

What is marginal benefit?

Price of producing one additional unit of a good Signup and view all the answers

To calculate profit, producers subtract their total production cost from what?

Total revenue Signup and view all the answers

What does marginal revenue refer to?

Additional income gained from selling an additional good Signup and view all the answers

What is the point of maximum profit?

Marginal cost equals marginal revenue Signup and view all the answers

What is specialization?

The act of limiting the types of goods and services produced Signup and view all the answers

It is better for businesses to have what type of opportunity costs?

Lower Signup and view all the answers

In the US, which type of industry is often considered part of an oligopoly?

Cell phone carriers Signup and view all the answers

What helps enable an oligopoly to form within a market?

Costs of starting a competing business are too high Signup and view all the answers

What is a characteristic of a monopoly?

There are no substitutes Signup and view all the answers

Study Notes

Market Concepts

Disequilibrium occurs when prices fall below the intersection point of supply and demand.
Equilibrium is achieved when supply and demand align to establish prices and production.
Excess supply results from prices deviating from the equilibrium, leading to higher quantity than demand.

Producer Dynamics

Producers play a vital role as they supply goods and services.
Monopoly exists when a single supplier dominates a market, with no available substitutes.
A producer with absolute advantage is deemed efficient in their operations.

Competition and Pricing

Producers in monopolistic competition differentiate goods primarily through product features.
Pure competition is unsustainable for producers as continuous price drops erode profit margins.
The law of demand indicates that as prices rise, the quantity demanded decreases; conversely, demand increases as prices fall.

Elasticity and Opportunity Costs

Elasticity refers to how demand varies as distribution of a good changes.
Specialized producers reduce opportunity costs by limiting their range of production.

Supply and Demand Interactions

When demand is high but supply is low, achieving equilibrium requires increasing supply.
Prices will drop when supply exceeds demand until a balance is reached.

Incentives

Incentives, both positive (like coupons) and negative (avoiding extra fees), influence consumer and producer behavior.
Goods classified as needs generally exhibit inelastic demand, meaning demand remains stable despite price changes.

Revenue, Profit, and Margins

Revenue represents the total income from sales, whereas profit is what remains after deducting production costs.
Marginal cost indicates the cost of producing one additional unit, while marginal benefit reflects the price at which that unit is produced.
The point of maximum profit is identified when marginal cost equals marginal revenue.

Specialization

Specialization involves focusing on specific goods and services to enhance efficiency, leading to lower opportunity costs and comparative advantages.

Industry Structure

In the United States, the cell phone carrier industry exemplifies an oligopoly, characterized by a few dominant firms.
High startup costs can inhibit competition and thus enable oligopolistic structures, as new entrants find it challenging to establish themselves in the market.

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Description

Test your understanding of fundamental market concepts including equilibrium, disequilibrium, and the dynamics of producers. Dive into competition types and the principles of supply and demand. This quiz covers critical economic principles essential for grasping market behavior.