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economics is the study of
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how society uses limited resources
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scarcity can best be described as a situation caused by
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limited goods to satisfy all of the buyers' demand
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an arrangement that allows buyers and sellers to exchange things called
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a market
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because resources are limited
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firms will be forced out of business
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the 3 key economics questions are
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1. what products do we produce?
2. who consumes the products?
3. what products will be produced?
2. who consumes the products?
3. what products will be produced?
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deciding if a power company will generate electricity from wind power or coal answers the economic question of
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how will the products be produced
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to think at the margin means to consider
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how people decide to purchase the next good or serivce
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Jerome has a "c" average in his philosophy course and a "b" average in his economics course. he decides to an extra hour for his philosophy exam. this is an example of
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thinking at the margin
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when economists assume that people are rational and respond to incentives, they mean
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people act in their own self-interest
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because resources are limited
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firms will be forced out of business
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trade-off is
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sacrificing one thing for another
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resources consist of
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-the things we use to produce goods and services
-limited in quantity and can be produced goods and services
-scarce and therefore require choices to be made
-limited in quantity and can be produced goods and services
-scarce and therefore require choices to be made
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the saying that "there's no such thing as free lunch refers to the
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principle of opportunity cost
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a demand curve is defined as the relationship between
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the price of a good and the quantity of that good that consumers are willing to buy
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the quantity demanded of a production increase as
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the price of the product falls
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a supply curve is defined as the relationship between
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the price of a good and the quantity that producers are willing to sell
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in the event of excess supply in the coffee market, the price coffee will
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decrease
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bananas and apples are substitutes. when prices of bananas falls, the equilibrium quantity of apples will _____ and the equilibrium price of apples will _____.
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fall and fall
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peaches and cream are complements. when the price of peaches falls, the equilibrium quantity of cream will _____ and the equilibrium price of cream will ____.
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fall and fall
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true or false: if the cost of producing a product goes down, this will cause the equilibrium price of the product to decrease, and the equilibrium quantity of the product to increase
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true
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assume that coffee and tea are substitutes. when the price of coffee increases
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the demand for tea increases
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suppose that a product benefits from a successful advertising campaign. the result is that
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the demand for the product increases
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suppose that consumers expect that the prices of a product will increase in the future. the result is that the current
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demand for the product increases
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what are characteristics shared by both monopolistically competitive markets and monopoly markets
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firms face downward sloping demand curves
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as a result of product differentiation, a firm in a monopolistically competitive market:
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always has some market power
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in a monopolistically competitive market, product differentiation ensures that in the long run
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price will exceed marginal revenue
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as more dunkin' donuts outlets open in the areas where krispy kreme has been dominant market prices will ______ and profits will _______.
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decrease and decrease
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on south street in Philadelphia, there are many Italian restaurants. each Italian restaurant carries a slightly different menu. in what type of market structure do these Italian restaurants belong?
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monopolistic competition
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in monopolistic competition, firms can have some market power based on the fact that:
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they produce differentiated goods
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oligopoly is a market
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with a few firms and the actions of one firm have a large impact on others
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an example of an oligopolistic industry
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airline services
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the market structure in which the behavior of any given firm depends on the behavior of the other firms in the industry is
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oligopoly
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consider four types of markets: monopoly, perfect competition, oligopoly, and monopolisitic competition. if they were ranked from the most competitive to the least competitive, ranking would be:
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perfect competition, monopolistic competition, oligopoly, monopoly
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in game theory, a strategy that represents the best choice for a firm no matter what the other firm does is termed
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a dominant strategy
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true or false: if one duopolist chooses the highest price it will maximize its profit
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false
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true or false: if firms in an oligopoly form a cartel, the outcome is the same as it would be under monopolistic competition
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false
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true or false: a dominant strategy exists when a firm's choice is the best regardless of other firm's decisions
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true
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