ECN 104 Lecture Notes - Lecture 3: Creative Destruction, Capital Accumulation, The Incentive

32 views9 pages

crimsonlizard687

1 Nov 2017

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

In a highly competitive market system, competition controls or guides self- Prices communicate information about scarcity and value. Competition forces producers and resource suppliers to respond. Firms, acting in their own best interest, also promote society"s interests in society"s output and income interest such that self-interest automatically and quite unintentionally furthers the best interest of society. Three special merits of the market system: terms of efficiency. The invisible hand ensures that when firms maximize their profits and resource suppliers maximize their incomes, these groups also help maximize. The outputs of many industries serve as inputs to other industries, the failure of any single industry to achieve its output target caused a chain reaction of repercussions. Bottlenecks and stoppages became the norm, not the exception. The major success indicator is a quantitative target that central planner assigned. Productions costs, quality, and product mix are secondary considerations. If central planner misjudged persistent shortages and surpluses.

Related Questions

1. A reason why there is more competition in the restaurant industry than in the music streaming industry is that restaurants

A.unlike music streaming? companies, have to abide by government sanitation rules.

B.have to cater to a variety of consumer tastes while music streaming companies do not.

C.have more elastic demand for their product compared to music streaming companies.

D.unlike music streaming? companies, do not have significant economies of scale.

2. Why would a government use a patent to block entry to some markets if this hinders competition especially when governments generally promote? competition?

A.Patents are justified because they are an important means for creating network externalities.

B.Patents encourage firms to spend money on research necessary to create new products.

C.Politicians sometimes succumb to pressure from lobbyists to grant favors to businesses for political reasons.

D.Patents are an important source of government revenue.

3.Suppose we can divide all the goods produced by an economy into two? types: consumption goods and capital goods. Capital? goods, such as? machinery, equipment, and? computers, are goods used to produce other goods.

Suppose a technological advance occurs that affects the production of consumption goods but not capital goods.

If a technological advance occurs that affects the production of consumption goods but not capital?goods, then the production possibilities frontier will

A.remain unchanged.

B.shift outward along the consumption goods axis.

C. shift outward along the capital goods axis.

D. shift outward along both axes.

The new production possibilities frontier will indicate that with the technological? advance, more (CAPITAL GOODS /// CONSUMPTION GOODS /// OF BOTH GOODS) can be produced.

4. Market failure is best described as

A.All of the above.

B.when consumption occurs at low social benefit.

C.when the market fails to produce the efficient level of output.

D.when the market fails to produce deadweight loss.

E.when production occurs at high social cost.

The market will fail when which of the following? happen????(Check all that? apply.)

A.When property rights are incomplete.

B.When there is a market surplus.

C.When there is scarcity.

D.When it is difficult to enforce property rights.

E.When there is a market shortage

5.In which of the following market structures is price discrimination? possible?

??????a. perfect competition

??????b. monopoly

??????c. oligopoly

??????d. monopolistic competition

A.?b, c, and d only

B.?a, b,? c, and d

C.c and d only

D.b and c only

6. How do market economies ultimately determine what goods and services are? produced, how the goods and services will be? produced, and who will receive the goods and? services?

A.The government determines what goods and services are? produced, how to produce? them, and who will receive them.

B.Firms determine what goods and services are produced and how to produce? them, and markets determine who will receive them.

C.Consumers determine what goods and services are? produced, firms determine how to produce? them, and equity determines who will receive them.

D.Consumers determine what goods and services are? produced, firms determine how to produce? them, and markets determine who will receive them.

E.Firms determine what goods and services are? produced,technology determines how to produce? them, and consumers determine who will receive them.

7. For monopolistically competitive firms is it always likely in the? long-run to have? zero-economic profit?

Monopolistically competitive firms in the? long-run

A.may continue to earn profit by convincing consumers their products are differentconvincing consumers their products are different.

B.will not continue to earn profit because the cost of production will rise as new firms enter the market.

C.will not continue to earn profit because monopolistically competitive firms produce identical products.

D.will continue to earn profit due to barriers to new firms entering the market.

E.may continue to earn profit by instead beginning to produce a product identical to competitors.

8. In monopolistically competitive? markets, what is a factor under a? firm's control that determines whether it will be? successful?

A. Upper A firm's ability to differentiate its productA firm's ability to differentiate its product.

B.Consumer preferences.

C.Factors that affect all firms in a market.

D.Chance events.

E.Both a and b.

9. From the list? below, select the necessary condition in order to achieve successsful price discrimination.

A. The seller must possess market power.

B. Buyers must have identical inelastic demands.

C. Transactions costs must be zero.

D.The buyer must possess market power.??

10.Suppose Dell is currently selling 3,000,000 computers per year. However, managers at Dell are considering whether to increase production by 300,000 computers. One manager explains that after increasing production by this? amount, total profit would be? $100 million. Given this? information, should Dell increase production by 300,000 computers??

A.?Yes, because Dell would earn a profit.

B.Information about the additional cost incurred from producing 300,000additional computers is required to answer this question.

C.?No, because increasing production by 300,000 computers would decrease the price of computers.

D.Information about the additional revenue earned and the additional cost incurred from producing 300,000 additional computers is required to answer this question.

E. Information about the total revenue earned and the total cost incurred from producing 3,300,000 computers is required to answer this question.

11. The Majestic box office sells tickets for the same play at different? prices: a lower price to those who opt for the seats at the back of the theatre and a higher price for those who purchase seats in the? front, around the stage. Which of the following statements is? true?

A. This is an example of product differentiation not price discrimination.

B. The theatre practices first degree price discrimination by setting prices based on willingness to pay.

C. Charging two different prices is an effective way to avoid an excess demand for play? tickets; the higher price lowers quantity demanded to some extent.

D. Since the cost of producing the play does not change with the seating? configuration, this is evidence of price discrimination based on market segmentation.

Question 3

According to Joseph Schumpeter, the theory of creative destruction describes a process by which

	A	some new products unleash a gale of destruction that drive other new products out of the market.
B		new products unleash a gale of destruction that drives old products out of the market.
C		new products are created by the destruction of capital.
D		the creation of new products never involves the destruction of old products.

Question 4

Which of the following countries had the highest GDP per capita in 2012?

		A Qatar
B		United States
C		Japan
D		Norway

Question 5

________ save a ________ of their income. This ________ capital in their economy and raises economic growth.

	A	Developing countries; large proportion; decreases
B		Developing countries; small proportion; increases
C		High-income countries; large proportion; increases
D		High-income countries; small proportion; increases

Question 6

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

A		government
B		households
C		banks
D		firms

Question 7

The U.S. economy has been more stable since 1950.

True

False

Question 8

When the economy reaches a trough in a business cycle, which of the following will occur?

A		Income, production, and employment will continue to fall.
B		Income, production, and employment will begin to rise.
C		Income and production will rise, but employment will continue to fall.
D		Employment rises, but income and production will continue to fall.

Question 9

In a closed economy, what is the relationship between saving and investment?

A		Saving is greater than investment.
B		Investment is greater than saving.
C		Investment is equal to saving.
D		Investment may be greater or smaller than saving.

Question 10

The per-worker production function shows the relationship between ________ per hour worked and ________ per hour worked, holding ________ constant.

A		labor; real GDP; technology
B		capital; real GDP; technology
C		labor; capital; real GDP
D		capital; labor; real GDP

Question 11

New growth theory states that increases in ________ capital will result in ________ at the ________ level.

	A	knowledge; increasing returns to scale; firm
	B	physical; decreasing returns to scale; firm
	C	knowledge; decreasing returns to scale; economy
D		knowledge; increasing returns to scale; economy

Question 12

Which of the following is not a reason why the Industrial Revolution occurred when and where it did?

A		The British government was committed to upholding private property rights.
B		The British government was able to eliminate arbitrary increases in taxes.
C		The British government was able to more easily seize wealth.
D		Institutional changes by the British government helped protect wealth.

Question 13

Growth in real GDP per capita for the world economy was greatest during

A		the seventeenth century.
B		the eighteenth century.
C		the nineteenth century.
D		the twentieth century.

Question 14

Which of the following is a normative statement about economic growth?

A		Economic growth is associated with higher labor productivity growth.
B		Economic growth increases GDP per capita.
C		Economic growth hurts developing countries.
D		Foreign direct investment stimulates economic growth.

Question 15

The effect of a recession on a company like Whirlpool Corporation is such that

A		sales decline more sharply for Whirlpool as compared to firms that do not produce durable goods.
B		profits fall less sharply as compared to firms that do not produce durable goods.
C		the decline in sales is more short-lived as compared to firms that do not produce durable goods.
D		there is no difference in the impact of the recession on its profits as compared to firms that do not produce durable goods.

Question 16

For the recessions in the United States since the 1950s,

A		cyclical unemployment has been non-existent.
B		unemployment rises on average by about 1.2 percentage points 12 months after a recession begins.
C		unemployment falls on average by 2 percentage points 12 months after a recession begins.
D		unemployment rises on average about 5 percentage points 12 months after a recession begins.

Question 17

You are an economic advisor to the president. You are asked to recommend a policy to promote long-term economic growth in the economy. Which of the following policies would you choose?

A		a reduction in sales taxes
B		an investment tax credit
C		a reduction in taxes on luxury yachts
D		All of these

Question 18

In comparison to a government that runs a balanced budget, when the government runs a budget deficit,

	A	the equilibrium interest rate will fall.
	B	business investment will fall.
	C	household savings will fall.
	D	None of these

Question 19

If labor productivity growth slows down in a country, this means that the growth rate in ________ has declined.

A		labor force participation
B		the quantity of goods or services that can be produced by one hour of work
C		the working-age population
D		nominal GDP

Question 20

Policies to promote growth by increasing saving and investment work through

A		decreasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.
B		increasing the supply of loanable funds, increasing the interest rate, raising the level of investment in physical capital.
C		increasing the supply of loanable funds, lowering the interest rate, lowering the level of investment in physical capital.
D		increasing the supply of loanable funds, lowering the interest rate, raising the level of investment in physical capital.

Need help revising, and recommendation for a conclusion.

Throughout this paper is my understanding of what I have learned in class chapters 1-4, expressing my understanding and opinions. Economics is the study of how we deal with scarce resources. Microeconomics specially deals with business in the home country exclusively. This type of economics affects small businesses in the home country only. On the other hand, macroeconomics concerns our national welfare concerning trade and international business.

I believe that many things affect our economy on a microeconomics level. Things such as our understanding of our country in reflection to the world are very important. That is why we study ourselves before we study the macroeconomic principle of the world. Understanding ourselves is what microeconomics teaches us. Working from the inside out. The world is a place where there are differences in our wants and what we get. That is what makes items scarce. That is what positive economics is. Positive economics deals with what is and what we have. The other type of economics is called normative statements. This deals with what we should receive instead of what is and deserved to some extent. It's our scarce resources that determine our allocation of resources and how we use our resources and time. This is where opportunity costs come in, giving up something to do something. A successful business or country never ignores opportunity costs. We must ensure that we have a comparative advantage instead of the absolute advantage. Our resources must be used to achieve maximum output. Comparative is met when we have fewer opportunity costs to make some certain products than the other person or entity.

My initial understanding was scarcity was oil potentially running out, but we have so much of it that you can always find more with techniques such as fracking. Now it's obvious to me, one of our most scarce resources is time. You cannot avoid the 8,760 hours in a year. I understand that people have unlimited wants but limited resources. Everything has a cost and we must make a choice as we don't have unlimited farms, factories workers, etc. scarcity forces choices and this ties in with opportunity cost, for every gun made, a theft from the hungry is made. The opportunity cost not being used to feed the poor, but to make guns. And I find it easy to understand no one can have everything choices must be made on benefits. If I'm going to school, imp giving up making cash, as I'm giving up money for an education, I value education more. Scarcity is also related to the invisible hand. As it's an achievement that leads free markets and capitalism through competition for scarce resources.

My understanding of the invisible hand is a person neither intends to promote public interest and does not know how much he is promoting it. Only intending on his own gain. Without being his intention a person can be lead by the invisible hand to do good for society by pursuing one's own self-interest. Going into equity and efficiency the invisible hand does ensure both equity and efficiency. People work in their selfish ways to maximize profit while also contributing to the economy as a whole. It can also be argued that as the invisible hand wants to ensure efficiency, it cannot guarantee efficiency, because it can fail to produce an efficient allocation of resources, which in turn lead to a market failure. It can also be argued that it can't guarantee equity because not everyone gets a fair price. The way I like to remember efficiency is with a real-life example, like a reduction in the number of workers needed to produce a particular good for a particular amount. Equity refers to the ownership interest in an asset, for example, if a person owns a house with a market value of $800,000 and owes $100,000 on the mortgage leaving a $700,000 equity in the home.

It can be predicted that if the price of beef increases - ceteris paribus-the quantity of beef demanded by buys will decrease. In other words, if the price of beef increases, then the quantity of beef increases, then the quantity of beef demanded will decrease because all things have to be equal. In-class lecture thought me all other things remaining the same. Economists use ceteris paribus to determine the effect of a factor when all other factors have been held the same and helps simplify the study and get a more refined data set.

Economists deal with many issues that pertain to assuring that both a countries domestic output is efficient and that there is an effective trade balance. This means that there are a balance and limit on the amount of imports. Also, this means home production must be able to meet export demands. There are many factors that affect the production of goods and their effect on shifting the production possibilities frontier. This involves evaluating every detail including knowing the products and any close substitutes and compliments. It also involves knowing how an action or other external force will affect demand. This is called price elasticity; Substitutes are products that can replace any given product or service. An example of this would be Coke and Pepsi. The presence of substitutes affects price elasticity because if there are other options, then any change to the price or quality of the product will cause a shift of the demand curve. O course, price is a huge reason why the demand for a product decreases or increases yet it doesn't shift the curve because of the price only. This price change will cause a domino effect that will end with the shifting of the demand curve because it will cause an increase or decrease in demand of the substitute good if the price change is either lower or higher respectively. This price change serves as a catalyst that will change people's desire to spend more money on a more expensive product and that will instead choose to buy the substitute good for cheaper or buy more of the desired product. The change in the price of actual products will not shift the demand curve yet the change of the price of substitutes will because it serves to change people's purchasing behavior. On the other hand, compliments serve to boost demand when there is a decrease in price. The use of complementary goods is dependent upon another product. An example of this would be hot dogs and buns. If the price of hotdogs decreases then, conversely, the demand for hot dog buns will increase because of this change in price. In this scenario, the decrease in price will cause a positive shift in the demand curve because of people's desire and willingness to buy more buns. This is an example of a demand shifter. There are a few other demand shifters. The shifters of the demand curve are changes in expectations, disposable income, price of substitute goods and complements, tastes and preferences, and population size and composition. Changes in income affect the demand curve because if income is lower then people tend to save any extra income instead of wasting it. Disposable income is minimized and spending is lower. This also causes people to see a perceived value of things and distinguishing between what is necessary and what is a relative luxury. The lower the income, the higher the saving and avoidance to spend. An example of this would be if someone needs to buy some medication and it is relatively expensive, that doesn't mean that someone won't buy the medication just because it is expensive. It is necessary. Other factors that contribute to spending and demand are having a price ceiling and price floor. Having a price ceiling is a limit on the price of the product this is a government-imposed idea that is meant to protect consumers from unfair pricing and other conditions that may be malicious or obscure. This affects demand because if there is a price ceiling there is a limit on profit on a unit-to-unit basis. The other factor is the price floor. This price floor was created to encourage competition and affect consumers' willingness to pay because sometimes this new price may be higher than the original price. This causes a negative impact on a product that has a less than wanted perceived value. Many factors contribute to economic prosperity and certainly do help assure that information is analyzed and implemented into an economic and business plan.

limejellyfish231

ECN 104 Lecture Notes - Lecture 3: Creative Destruction, Capital Accumulation, The Incentive

Document Summary

Get access

Related Documents

ECN 104 Chapter Notes - Chapter 2: Consumer Sovereignty, Capital Good, Creative Destruction

ECN 104 Lecture Notes - Lecture 2: Corner Gas, Normal Good, Demand Curve

ECN 104 Chapter Notes - Chapter 2: Consumer Sovereignty, Economic System, Intellectual Property

Related Questions