51 Cards in this Set
| Front | Back |
|---|---|
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Types of Business
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1. Sole proprietorship
2. Partnership
3. Corporation
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Maximize Profit
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Goal of a business
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Profit
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payment to ownership
(revenues-costs)
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Compensation
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Keeps profit in line
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Fixed "Overhead" Costs
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costs that don't vary with how much is produced or sold (ex: space, equipment)
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Variable Costs
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costs that directly increase with production and sales (ex: workers, energy, raw materials, labor)
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Total costs
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fixed + variable costs
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The Shutdown Rule
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stay open as long as revenues exceed variable costs, have money leftover to apply to fixed costs
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Average Cost
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looking at cost at per production unit (total cost/units sold)
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Marginal Cost or Average Variable Cost
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the cost of making one more unit or, if making several more units, the cost per unit
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Advantages of Owning
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total control, lock-in costs, for real estate: possibility of value-appreciation
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Advantages of Leasing
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flexibility, not "locked-in" to space, avoid possible depreciation
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Fixed Costs for Leasing
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lease payments
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Fixed Costs for Owning
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loan payments
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Durable
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_______ products wear out
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Two Reasons to Expand a Business
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1. become more cost-efficient producing more at a lower cost per unit
2. selling more units and therefore making more profit
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Economics of Scale
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costs per unit fall as increase production
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Diseconomies of Scale
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Costs per unit rise as increase production (due to management and coordination)
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Demand Curve
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buy less when price is up, buy more when price is down
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Revenue
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price x quantity bought
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Price Inelastic Demand Curve
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buyers reduce amount bought when price rises- very little revenue rises
(ex: gasoline, food, electricity, other fuels)
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Price Elastic Demand Curve
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buyers reduce amount bought substantially when price rises - revenue falls (ex: airplane trips, luxury vehicles, foreign travel, mass transit)
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Elasticity of Demand Formula
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% change in quantity bought/ % change in price = always negative
If bigger than -1: price elastic
If smaller than -1: price inelastic
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Reasons for elasticity
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increase in competitive products and over time as buyers adjust
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Market Structure
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how businesses interact with each other
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Perfect Competition
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many businesses selling the exact same product (no control over price)
good for consumer bad for business
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Monopoly
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One seller- no competitors
"price setter"
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Oligopoly
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small number of producers, each making and selling the same price
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Collusive Oligopolies
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cooperate instead of compete (agree to common price and specific selling)
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Monopolistic Competition (most common)
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many businesses, all selling the same product but tweak the characteristics of their product so consumers think they are unique
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Market Segmentation
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divide buyers into different groups, charge group a different price and increase profits (based on elasticity of demand)
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Market Change
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using economic concepts to understand how and why prices and quantities change over time
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Supply Curve
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producers want to make and sell more of the higher price unit
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Equilibrium Price
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price which makes the quantity which buyers want to purchase he same as the quantity which producers want to make and sell
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Increase in Demand
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prices rise, motivates producers to make and sell more
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Decrease in Demand
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prices fall, motivates producers to make and sell less
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Increase in Supply
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prices fall, motivates consumers to buy more
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Decrease in Supply
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prices up, motivates consumers to buy less
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International Trade
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_______ _______ is 1/3 of the economy
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Absolute Advantage
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we have what they want; they have what we want
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Comparative Advantage
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a country specializes in a good or service; more efficient
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Export
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product or service made in the US, sold to foreign county
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Import
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made in foreign country; sold to US
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Trade Surplus
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exports > imports
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Trade Deficit
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Imports > exports
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Currency Exchange
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rate at which one currency trades for another
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Makes a Currency Stronger
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1. lower inflation
2. higher interest rates
3. slower economic growth
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Makes a country weaker
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1. higher inflation
2. lower interest rates
3. slower economic growth
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Tariff
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Tax on imports
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Quota
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limitation on amount of imports
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Trade Agreements
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reduces tariffs and quotas and promotes world trade
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ARE 201: EXAM 3