o A market is any arrangement that bring buyers and sellers together. A market might be a
physical place or a group of buyers and sellers spread around the world who never meet.
Classifying Goods and Resources
o What is the essential difference between:
o A city police department and Brinks security
o Fish in the Pacific Ocean and fish in a fish farm
o A live concert and a concert on television
AP Economics Period 7
The Elasticity of Demand
o By knowing how sensitive or responsive buying plans are to price
changes we can predict how a given change in supply will change price
o Price elasticity
The Cost of Production
1. Two small airlines provide shuttle service between Las Vegas and Reno. The services are alike in
every respect except that Fly Right bought its airplane for $500,000, while Fly by Night
Chapter 12: Monopolistic Competition and Oligopoly
MONOPOLISTIC COMPETITION AND OLIGOPOLY
1. What are the characteristics of a monopolistically competitive market? What happens
to the equilibrium price and quantity in such a ma
Explicit costs are actual outlays. They include all costs that involve a monetary
Chapter 2: The Basics of Supply and Demand
CHAPTER 2 THE BASICS OF SUPPLY AND DEMAND
QUESTIONS FOR REVIEW
1. Suppose that unusually hot weather causes the demand curve for ice cream to shift to the right. Why will the price of ice cream rise to a new mark
It is generally said that international trade provides benefits to domestic producers and
consumers but there are some economists who maintain that the current international trading
system hinders economic development in the developing nations. Thus in su
Externalities In Our Daily Lives
o An externality is a cost or a benefit that arises from:
o Production that falls on someone other than the producer
o Consumption that falls on someone other than the consumer
Resource Allocation Methods
o Scare resources might be allocated by using any or some combination of the following
o Market price, command, majority rule, contest, first-come first-served, sharing
o Price ceiling or price cap is a government regulation that places an upper limit on the
price at which a particular good, service, or factor of production may be traded.
o An example is a price ceiling on housing rent
o Tax incidence is the division of the burden of a tax between the buyer and the seller.
o When a good is taxed, it has two prices:
o A price that includes the tax
o A price that excludes the tax
o Buyers respond to the
11.1 Consumption Possibilities
o Our consumption choices are determined by our income and the prices of goods.
The Budget Line
o The budget line is a line that describes the limits to consumption possibilities and that
The Firms Goal
o To maximize profit
Accounting Cost and Profit
o An accountant measures cost and profit to ensure that the firm pays the correct amount of
income tax and to show the bank how the firm has used its bank loan.
What is monopolistic competition?
o Monopolistic competition is a market structure in which
o A large number of firms compete.
o Each firm produces a differentiated product.
o Firms compete on price, product quality, and ma
What Is Oligopoly
o Another market type that stands between perfect competition and monopoly.
o Oligopoly is a market type in which:
o A small number of firms compete.
o Natural or legal barriers prevent the entry of new firms.
o Regulation: rules administered by a government agency to influence economic activity
by determining prices, product standards and types, and the conditions under which new
firms can enter an industry.
The Anatomy of Factor Markets
o The four factors of production that produce goods and services are:
o Factor price: The price of a factor of production.
o The wage rate is the pri
o Production possibilities frontier is the boundary between the combinations of goods and
services that can be produced and the combinations that cannot be produced, given the
Wealth of Nations (1776) by Adam Smith and Principles of Economics (1951) by David Ricardo
heralded the formulation international trade theories. To Adam Smith it was the division of labor
that reduces cost production an