Econ Exam 3 MMHS

What term describes the point at which supply and demand come together?

Equilibrium

Why does the government place price ceilings on some "essential" goods?

To keep the goods from becoming too expensive

What term describes the legal maximum that can be charged for a good?

Price ceiling

What term describes when the government sets a price floor on earnings?

Minimum wage

What happens when any market is in disequilibrium and prices are flexible?

Market forces push toward equilibrium

What term describes when quantity demanded is more than quantity supplied?

Excess demand

Until 1996, the United States used price supports in agriculture by doing what to create demand?

Buying excess crops

What term describes when quantity supplied is not equal to quantity demanded?

Disequilibrium

What term describes the government controlled price ceiling on apartment prices?

Rent Control

What condition arises when quantity supplied is greater than the quantity demanded?

Surplus

What term describes the financial and opportunity costs consumers pay in looking for a good or service?

Search Cost

What term describes when quantity demanded exceeds quantity supplied at a certain price?

Excess demand

Advances in what can transform a good from an expensive luxury to a mid-priced good?

Technology

How do falling prices affect supply?

The quantity demanded rises

Driving to a far away place to find available goods is an example of what economic term?

Search cost

Factors that reduce supply can shift the supply curve in what direction?

Left

What term describes the point at which the quantity supplied and quantity demanded are the same?

Equilibrium

What does a firm generally respond to a higher demand for its goods?

It raises prices

What term describes a product that reflects the impact of advertising and consumer taste on consumer behavior?

Fad

What term describes when quantity supplied exceeds quantity demanded at a certain price?

Surplus

What term describes a situation in which resources are distributed according to price?

Free market

What is the main principle of Adam Smith's "The Wealth of Nations"?

Business prospers by finding out what people want and providing it

Why did the former Soviet Union use a command economic system instead of one based on price?

It hoped to create a society based on equal distribution of goods and services

What term describes a sudden shortage of a good?

Supply shock

Why did the United States use rationing during World War II?

Because the needs of the armed forces created tremendous shortages

What term describes dividing up goods and services without regard to price?

Rationing

What term describes business conducted without regard for government controls?

Black Market

What provides a language of exchange where producers can measure demand and consumers express demand for a product?

Price

What term describes production costs or externalities paid by the general public?

Spillover costs

What does a free market provide as an incentive for forms to increase or decrease goods based on consumer demand?

Profit

What is the relationship between start-up costs and a competitive market?

Markets with high start-up costs are less likely to be perfectly competitive

What term describes a market with many well-informed buyers and sellers, identical products, and free entry and exit?

Perfect competition

What term describes a product that is considered the same regardless of who makes or sells it?

Commodity

How does a perfect market influence output?

Each firm adjusts its output so that its costs, including profit, are covered

Why does a perfectly competitive market require many participants as both buyers and sellers?

So no individual can control the price

What is an example of a commodity, which is a product that is considered the same regardless of who sells it?

All answers are correct

What term describes a market structure that does not meet the conditions of perfect competition?

Imperfect Competition

What term describes expenses a new business must pay before the first product reaches the customer?

Start-up cost

Why are there actually relatively few markets in which there is perfect competition?

Barriers keep companies from entering the market freely

What term describes factors that make it difficult for new firms to enter a market?

Barriers to entry

What term describes a single seller that has the right to sell goods in an exclusive market?

Franchise

What term describes a single seller in a market?

Monopoly

What is an example of price discrimination that consumers are willing to tolerate?

All answers are correct

What is the government's purpose in giving an antitrust exemption to sports leagues?

Keep team play orderly and stable

What term describes the division of customers into groups based on how much they will pay for a good?

Price discrimination

What term describes a company that has the exclusive right to sell a new good or service for a specific time period?

Patent

How does the controller of a monopoly decide at what price to set for goods?

The price at which the profit is maximized

What term describes factors that cause a producer's average cost per unit to fall as output increases?

Economies of scale

Why are patents a form of monopoly that society allows?

Encourages firms to research and develop new products that benefit society as a whole

What term describes a market that runs most efficiently when one large firm supplies all the supplies?

Natural Monopoly

What term describes a way to attract customers through style, service, or location, but not a lower price?

Non-price competition

What is the only way that a cartel is able to survive?

Every member keeps to the agreed output levels

What term describes a market structure dominated by a few large, profitable firms that produce 70-80% of the market output?

Oligopoly

What term describes many companies in an open market selling similar products?

Monopolistic competition

What term describes a formal organization of producers that agree to coordinate prices and production?

Cartel

In monopolistic competition, why are profits well in excess of costs unlikely?

Established rivals and new firms would lure customers away from slightly different and/or cheaper products

What is a major characteristic regarding the prices in monopolistic competition?

Prices are higher than in perfect competition

What is the main difference between perfect competition and monopolistic competition?

In monopolistic competition sellers can profit from the difference between their products and other products

What term describes an agreement among members of an oligopoly to set prices and production levels?

Collusion

What term describes an agreement among firms to sell at the same or very similar prices?

Price fixing

The U.S government's policies to deregulate the baking industry led to a surge of what in the late 2000s?

All answers are correct

Why did the U.S government sue Microsoft in 1999 for being a monopolistic firm?

Predatory pricing and requiring customers to buy other products

What term describes setting the market price below the cost in the short term to drive competitors out of business?

Predatory pricing

What term describes the government policies that keep firms from controlling the price and supply of important goods?

Antitrust laws

What term describes an illegal group of companies that discourages competition like a cartel?

Trust

What do antitrust laws allow the U.S government to do?

All answers are correct

Before the government approves a merger, companies must prove that the merger will do what?

Lower costs and consumer prices or lead to a better product

What is the purpose of both deregulation and antitrust laws?

Promote competition

What term describes the government no longer deciding what role each company can play in the market and how much it can change?

Deregulation

What term describes a company that joins another company to form a single company?

Merger