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Questions and Answers
What results when prices drop below the point where supply and demand meet?
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?
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?
What role do producers play in economics?
Producers supply goods and services
What does equilibrium occur when supply and demand coordinate to?
What does equilibrium occur when supply and demand coordinate to?
What is a monopoly?
What is a monopoly?
What is the best definition of elasticity in economics?
What is the best definition of elasticity in economics?
How do producers differentiate themselves in monopolistic competition?
How do producers differentiate themselves in monopolistic competition?
Why is pure competition considered an unsustainable system?
Why is pure competition considered an unsustainable system?
How do specialized producers decrease their opportunity costs?
How do specialized producers decrease their opportunity costs?
What creates excess supply?
What creates excess supply?
What describes a producer with an absolute advantage?
What describes a producer with an absolute advantage?
What happens to prices when supply is higher than demand?
What happens to prices when supply is higher than demand?
If supply for a product is low but demand is high, what needs to happen to achieve equilibrium?
If supply for a product is low but demand is high, what needs to happen to achieve equilibrium?
What is the order of companies from greatest to least comparative advantage in producing small tubes of toothpaste?
What is the order of companies from greatest to least comparative advantage in producing small tubes of toothpaste?
What best explains the law of demand?
What best explains the law of demand?
According to the law of supply, how do price and quantity move?
According to the law of supply, how do price and quantity move?
In the market, what do actions known as incentives affect?
In the market, what do actions known as incentives affect?
Goods that are considered to be needs tend to be?
Goods that are considered to be needs tend to be?
Provide an example of a positive incentive for consumers.
Provide an example of a positive incentive for consumers.
Why might a consumer respond to a negative incentive?
Why might a consumer respond to a negative incentive?
What is the difference between profit and revenue?
What is the difference between profit and revenue?
Define marginal cost.
Define marginal cost.
What is marginal benefit?
What is marginal benefit?
To calculate profit, producers subtract their total production cost from what?
To calculate profit, producers subtract their total production cost from what?
What does marginal revenue refer to?
What does marginal revenue refer to?
What is the point of maximum profit?
What is the point of maximum profit?
What is specialization?
What is specialization?
It is better for businesses to have what type of opportunity costs?
It is better for businesses to have what type of opportunity costs?
In the US, which type of industry is often considered part of an oligopoly?
In the US, which type of industry is often considered part of an oligopoly?
What helps enable an oligopoly to form within a market?
What helps enable an oligopoly to form within a market?
What is a characteristic of a monopoly?
What is a characteristic of a monopoly?
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.
