ECO01 UNIT 7
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| Price | An offer, a suggestion or an experiment to test the pulse of the market
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| Price, value and utility | 3 related concepts in economic theory
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| Utility | Attribute of an item that makes it capable of satisfying wants.
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| Value | Quantitative expression of the power a product has to attract other products in exchange
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| Money | Common denominator of value
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| Price | Money value of an item
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| Price | Expressed in terms of pesos and centavos, or whatever the monetary medium may be in the country where the exchange occurs.
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| Price | Amount of money (plus possibly some goods) which is needed to acquire, in exchange some combined assortment of a product and its accompanying services.
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| Price essential function | Tell producers what and how much to produce.
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| Price essential function | movements of prices automatically keep supplies coming forward approximately in line with consumer’s demands
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| ration or allocate productive resources to where | to the production of goods and services that consumers demand
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| Price essential function | perform an internal rationing and allocating function within each producing farm.
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| Prices of the productive resources or factors of production | tell farmers how to combine them in proportions that will keep their costs at a
minimum and result in the most efficient productio
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| Factors of production | land, labor, capital and entrepreneurship
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| Productive resources | hectares of land, manpower, feeds, machinery, etc.
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| Price essential function | Guide them through the channels of trade so they end up where consumers want them, when they want, and in the form they
want them.
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| Price essential function | Ration the goods and services to those who demand them most urgently and in proportions that will all be consumed
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| Perfect Market | A market wherein prce serves the dual role of informing producers of consumers’ wants and informing consumers of the varying conditions of production.
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| Perfect Market | A market assuming that producers, consumers and all handlers have complete knowledge of demand and supply, and that this information is used without distortion in making all purchasing and production decisions.
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| Supply and demand | Purely determines price
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| Time, location and form of product | Differences causing of price differentials
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| Time | Price differential: cost of storing
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| Location | Price differential: transporting
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| Form | Price differential: processing
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| Uniform price | No other differences in price existing throughout the perfect market
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| Market price | Determined by forces of supply and demand
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| Demand | What buyers are willing to take from a market at a given price
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| Supply | What producers or sellers are willing to offer.
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| Price will tend to rise | Demand increases with no change in supply
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| Price will tend to rise | Supply-decreases with no change in demand.
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| Price will tend to rise | A higher price will occur when supply decreases and demand increases simultaneously
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| Price will tend to fall | Demand decreases with no change in supply
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| Price will tend to fall | Supply increases with no change in demand
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| Price will tend to fall | A relatively large decline will occur if supply increases and demand decreases simultaneously
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| Equilibrium price will tend to remain unchanged. | Supply and demand change in the same directions in equal magnitudes,
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| Monopoly | In single firm industries, the seller will attempt to set a price that will maximize his profit
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| Marginal cost is equated with marginal revenue. | Price would be determined without regulation from the demand curve, corresponding to the quantity where?
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| Full cost | Under regulation, the monopoly would probably be forced to reduce his price, a price at which he isjust able to recover _____ including a fair return to factor inputs.
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| Monopolistic competition | A competitive market structure but with product differentiation.
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| Monopolistic competition | Products involved are close but imperfect substitutes, and by definition there are many substitutes.
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| Elastic | Demand curve faced by the firm operating in an industry characterized by monopolistic competition is likely to be very?
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| Cost structures | It is usually assumed that the firms have similar?
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| Firms with higher costs than others in the industry | Presumably could not exist in the long run in a competitive industry.
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| Equilibrium price (and output) | The basis is on equating marginal revenue and marginal
cost.
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| Similar, identical | Since the products are good substitutes and since similar cost structures are assumed, the prices of the various firms are expected to be _____ but not necessarily _____
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| Marginal revenue | Increase in revenue that results from the sale of one additional
unit of output.
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| Perfectly competitive | In economic theory, _____ firms continue producing output until marginal revenue equals marginal cost.
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| Law of diminishing returns | While marginal revenue can remain constant over a certain level of output, it follows from the ______ and will eventually slow down as the output level increases.
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| Change in total revenue / Change in total output quantity | Marginal revenue computation
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| Marginal revenue falls below marginal cost | When do firms typically do a cost-benefit analysis and halt production as it may cost more to sell a unit than what the company will receive as revenue?
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| Marginal cost | Change in total production cost that comes from making or producing one additional unit.
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| Change in production cost / Change in quantity | Marginal cost computation
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| Gain profit | If the marginal cost of producing one additional unit is lower than the per-unit price, the producer has the potential to?
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| Marginal cost analysis purpose | Determine at what point an organization can achieve economies of scale to optimize production and overall
operations.
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| Price competition / wars | Firms operating under conditions of monopolistic competition tend to avoid _____ _____because of the threat of retaliation by other firms.
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| Relatively little profit | If competing firms also lowered their prices to meet the competition, each would gain?
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| Profit-maximizing | _____ price is likely to be similar among firms
in the industry and relatively stable as long as cost remain constant.
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| Price cutting | Often leads to retaliation
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| Gain profit | If an individual reduced its own price, provided others did not, it would?
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| Oligopolistic conditions | Pressures to avoid direct price competition prevail in industries where a few firms produce or market identical or similar products.
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| Price decisions | In making _____ _____, each firm must take into account the possible reactions of its competitors.
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| Price change | A _____ _____ initiated by one firm is likely to be followed by other firms.
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| Oligopolistic conditions | Market where there is often a recognized “price leader” in the industry.
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| Pure monopoly conditions | If there is a tacit agreement to maintain market shares and to avoid open price competitions, the price established may approximate prevail in?
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| Purely competitive conditions | If an aggressive firm is seeking to enlarge its market share, the price established may be very close to that which would prevail under?
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| Oligopolistic conditions | Condition where it is difficult to generalize about pricing performance without specific knowledge about the behavior of individual firms.
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| Oligopolistic conditions | Competition for sales may take the form of offering more favorable credit terms, advertising or promotion allowance, or even secret discounts or rebates.
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