Economics Unit 2 Quiz 1

What are costs that remain the same no matter how much is produced?

Fixed costs of running a business

What are costs that remain the same for twelve months?

Fixed costs of running a business

What are some examples of fixed costs?

- Rent

- Mortgage

- Taxes

- Salaries

- Insurance

- Equipment depreciation: the value decreases over time

What are costs that change quickly?

Variable costs of Running a business

What are costs that can be changed depending on how much is produced?

Variable costs of Running a business

What are some examples of variable costs of Running a business

- Employees that are payed by hours

- Raw materials

- Advertising

- Certain types of taxes (especially income taxes)

- Utilities

- Maintenance

- Delivery/distribution

Factors of production

What is needed to make a good or a service

Different factors

Land

Labor

Capital

Entrepreneurship

Land

Resources for goods or service that come from the earth

Labor

Effort people devote to making a good or service for which they are paid

Capital

Any human-made resource used for producing the good or service

Entrepreneurship

Ideas on how to best use the resources

What is the U.S Economic System called

Free-enterprise

U.S Economic System

Mostly market economy (capitalism) with limited government intervention

Elements of free-enterprise

- Driven by individual desire to make profit

- Private ownership of property

- The importance of competition

- The consumers/the company will survive if people buy your stuff

- There is limited government intervention/the government is involved

Profit

Revenue - cost

Gross profit

Revenue of business - the cost of producing a resource

Net profit

Revenue of business - all operational costs

The government provides ...

essential goods or services to help consumers (ex: firefighters, ambulance, police officers)

The government is involved in infrastructure:

Physical structures made to help the economy (ex: freeways, airports)

The government is in charge of redistribution of ...

income (ex: They take more from the rich to help those in need (taxes))

The government protects...

your private property

The government of needed to will restore a market failure by...

- preventing the market from failing

- Making sure the market is not harming people

The government regulates producers by...

- Making sure producers are honest with consumers

- Making sure producers are not abusing their workers

In case of a crisis the government will...

provide economic assistance

What is the main key to the U.S. Economic System?

Eliminating competition

Why is eliminating the competition important?

- Once competition is eliminated you can raise prices

- Consumers will pay the price increase because you are the only option

- The good/service produced will become inelastic

How can you eliminate the competition?

- Become essential (make competition obsolete)

- Become bigger than your competition

- Economic of scale

- Wait for competition to self destruct

- Respond to conditions and pivot

With a cheaper price for raw materials, the company can...

reduce the price of their product

If you are selling your product at a low price and you're competition is unable to reduce their price they...

will lose sales

Economic of scale

If you are a bigger company you can buy in bulk which is cheaper to make and you can decrease the price

For economic to scale, companies will...

merge

Horizontal merger

Same area of markets (ex: two airlines)

Vertical merger

Different areas of markets (ex: whole foods & amazon)

Conglomerate

Different markets (ex: general electric & NBC)

Does the government have the power to say no to a merger?

Yes the government can say no to a merger.

Market structures

How industries are classified based on nature of competition

What are the different types of market structure

- Perfect competition (competition with a lot of different companies)

- Monopolistic competition (competition with one different company)

- Oligopoly (competition between four or five companies)

- Monopoly (one company)

Monopoly

Market has single suppler & barriers that prevent other companies from joining the competition

Types of legal monopolies

- Natural

- Geography

- Technology

Natural monopoly

Market structure that is most efficient to have one company in the market (ex: electricity, water, garbage, nuclear)

Geography monopoly

Monopoly because it's the only business there (ex: Las vegas, a small town)

Technology monopoly

Firm controls the method of manufacturing the product, or exclusive rights to manufacture it.

How can a firm control the right to manufacture a product?

Patent, Trademark, or copyright

Patent

Protects original invention

Trademark

Protects the image

Copyright

Protects words

Pros of monopolies

- More efficient

- Easy for the government to regulate

- There are possibilities for innovation

Cons of monopolies

- Discourages the company from improving

- Increased price due to lack of competition