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What almost always happens to quantity demanded as price drops?
it goes up
What impact does increasing income have on demand?
it increases purchasing power which increases demand
What are two other factors that greatly impact overall demand?
market size, tastes and preferences, prices of related goods, consumer expectations
What is the substitution effect?
consumers will purchase a lower price substitute if its effective
What is the name for reduced satisfaction achieved from continued consumption of a particular good?
diminishing marginal return
What does elasticity of demand measure?
the impact on demand of a price change in a particular good
If demand for a good changes little with changes in price then demand is elastic or inelastic?
inelastic
What does a supply schedule measure?
the amount supplied at a given price
If producers are willing to produce a much larger quantity with a small increase in price supply is considered elastic or inelastic?
elastic
What are two factors that cause shifts in supply?
price of resources, technology, competition, price of related goods, government activity
What is it called when a few major firms dominate a particular market?
an oligopoly
What is it called when an oligopoly colludes to set prices & ruin competition?
a cartel
What is a “price war”?
when members of an oligopoly stop colluding and try to undersell each other with increasingly lower prices
Where is market equilibrium?
where the demand curve hits the supply curve
What is a shortage?  a surplus?
a shortfall in the amount supplied, an excess of the amount supplied
What are two conditions that must be present for a monopoly to exist?
single seller, no substitutes, difficult market entry
Name two different types of monopoly?
natural, geographic, technological, and government
Identify two factors that place price pressure on monopolies.
consumer demand, potential competition, & gov’t regulation
What system is used by consumers and producers to communicate?
the price system
What are two advantages of the price system?
flexibility, efficiency, choice, incentives
What are two limitations of the price system?
can’t include externalities, hard to price public goods, general instability
What is the name for officially limiting the supply of a particular good? When has this happened in United States history?
rationing, World War II & Energy Crisis
What are two of the major criticisms of rationing?
unfair, too expensive, creates black markets
Does deregulation increase or decrease government control of business?
decrease
How does deregulation effect companies?
It decreases the amount of government restrictions on the business.
Selling a product below cost to drive competitors out of the market is:
Predatory Pricing
What are four Conditions of Monopolistic Competition?
Many firms, few artificial barriers to entry, slight control over price, differentiated products
What is the name for a situation in which many buyers and sellers compete under the laws of supply and demand?
perfect competition
What is the opposite of perfect competition?
monopolistic competition
What is product differentiation?
monopolies using small differences and marketing campaigns to set their products apart
What is the name for the practice of competition based on brand identity rather than price?
non-price competition
Give an example of economies of scale.
Hydroelectric plant and  telephone service- high start up cost, cost per unit decreases as output rises.
Give an example of a price ceiling and a price floor.
ceiling: rent & war rationing; floor: subsidies, crop prices, min. wage
Give two examples of how price controls can have negative side effects.
black markets, create shortages (e.g. rent control - housing)
What is the primary purpose of anti-trust legislation?
eliminate imperfect competition
What is the name for a group of businesses that share a name and product line but are individually owned?
franchises