BBA Major Field Exam - Business practice exam with 100% correct answers already graded A+

Scarcity and Choice Human wants and needs are unlimited and resources to satisfy them are limited. Choices must be made between the possible alternatives 3 Questions every economy must answer What to produce? How to produce it? For whom it is produced? Brainpower Read More Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:00 / 0:00 Full screen 3 Questions What to produce? Have to evaluate more than just needs. Involves the wants and needs of individuals. 3 Questions How to produce it? Center upon the methods and resources (land, labor, capital, enterprise) used in the production process. Optimum way to achieve the desired output utilizing these methods and resources. 3 Questions For whom it is produced for? Issue of the distribution of the output resulting from the application of the production methods and resources. Market Imperfections/Market Failure when market equilibrium results in too many or too few resources being used in the production of a good or service. This can be caused by lack of competition, externalities, public goods Lack of competition (Market Imperfections) Must have competition among both producers and consumers for markets to function effectively Externalities (Market Imperfections) When a cost or benefit is imposed on people other than the consumers and producers of a product (Ex. pollution from manufacturing negatively affects the community rather than either the buyer or seller) Public Goods (Market Imperfections) Goods are collectively consumed by everyone and there is no way to bar people who do not pay from consumption (Ex. National defense) Law of Demand Inverse relationship between the price of a good and that quantity buyers are willing to purchase in a defined time period Price as the Determinants (Demand) Primary determinant of the quality demanded is the price of the good. Changes in the price of a good result in movement of the equilibrium point along the demand line. Nonprice Determinant (Demand These result in a shift (left or right) in the demand curve - number of buyers - buyer tastes and preferences - buyer income - expectation of buyers - prices of related goods Changes in Demand Increase - (rightward shift) high equilibrium price and quantity Decrease - (leftward shift) lower equilibrium price and quantity Law of Supply More of a particular good will be supplied as the price of that good rises, while less will be purchased as its price declines. Non-Price Determinant (Supply) Result in a right or left shift in supply curve - number of sellers in a market -increases in technology that make suppliers more efficient - prices of raw materials - taxes of subsidies which increase or decrease the price of a product - changes in the expectations of producers - prices of other good the firm could produce Increase in Supply Rightward shift. Results in a lower equilibrium price and a higher equilibrium quantity Decrease in Supply Leftward shift. Results in a higher equilibrium price and a lower equilibrium quantity Equal increase in Supply and Demand Rightward shift. Increase in equilibrium quantity and no change in equilibrium price. Supply Increases more than Demand Rightward shift. Lower equilibrium price and greater equilibrium quantity Demand Increases more than Supply Rightward Shift. High price and greater equilibrium quantity Equal Decrease in Supply and Demand Leftward shift. Decrease in equilibrium quantity with no change in equilibrium price. Supply decreases more than Demand Leftward shift. Higher equilibrium price and lower equilibrium quantity. Demand decreases more than Supply Leftward shift. Lower price and a lower equilibrium quantity Shortage (Supply and Demand) Happens when a price is established below the equilibrium price and demand exceeds supply. Can be fixed when the price is free to move. The increase in price will slowly reduce the quantity demanded and increase the quantity supplied. Neither the supply or demand curves will move Surplus (Supply and Demand) Occurs when a prices is established above the equilibrium price and supply exceeds demand Can be fixed if the price is able to move. The decrease in price will slowly increase the quantity demanded and decrease the quantity supplied Neither supply or demand curves will move. Price Ceiling (Supply and Demand) A price set below the equilibrium price and results in a shortage with quantity demanded exceeding quantity supplied. Price Floor (Supply and Demand) A price set above the equilibrium price and results in a surplus with quantity supplied exceeding quantity demanded. Price Elasticity of Demand The relationship between the changes in the price of a product and the resulting changes in demand of that product Elastic demand When the percentage change in quantity demanded is greater than the percentage change in price. Ex. commodity products Inelastic demand When the percentage change in quantity demanded is less than the percentage change in price. Ex. health care Income Elasticity of Demand The ratio of the percentage change in the quantity demanded to a given percentage change in income Demand:Income Cross-Price Elasticity of Demand The ratio of the percentage change in the quantity demanded of a good to a given percentage change in the price of another good Demand: Price of other good Price Elasticity of Supply The ratio of the percentage change in the quantity supplied of a product to the percentage change in its price Supply:Price The Law of Diminishing Marginal Utility The principle that the satisfaction of a good or service declines as people consume more in a given time period Monopoly A market structure characterized by a single seller, a unique product, and impossible market entry Oligopoly A market structure characterized by few sellers, either homogeneous or differentiated product, and difficult market entry. Macroeconomics the study of decision-making for the economy as a whole Micoreconomic the study of decision-making by individuals (person or household) within an economy Gross Domestic Product (GDP) The market value of all final goods and services produced in a nation during a specified period of time. Total GDP includes 1. Final goods and services 2. Exclusion of used goods and paper transactions (used car sales, welfare, social security, unemployment, stocks and bonds) 3. Exclusion of output produced abroad by domestically owned factors of production Expenditure approach for calculating GDP GDP= C + I + G + (X - M) (C) personal consumption expenditures - total spending on durable and nondurable goods and services (largest component of GDP) (I) gross private domestic investment - amount domestic business spent (invested) in their business (plants, equipment, tools, and increase in inventory) (G) Gov't Consumption expenditures and gross investment - total value of goods and services purchased by government (tanks, bridges, schools, highways, and healthcare) (X-M) net exports - used to avoid double-counting on domestic spending on imported goods Business Cycle The alternating growth and decline periods in an economy which are measured by GDP. The 4 phases are peak, recession, trough, and recovery Frictional Unemployment caused by the normal search time required to find a job Structural Unemployment caused by a mismatch between the skills a worker possesses and the skills required by the industry Cyclical Unemployment Unemployment caused by a lack of jobs due to a recession Natural Unemployment Rate 5% of the labor force will be unemployed. This is said to be "full employment" What is Money? 1. Services as a medium of exchange 2. Services as a unit of account - provides a common measurement of the relative value of goods and services 3. Has a store of value (holds its value over time) Commodity money Serves as money while having market value in other uses (gold) Fiat Money Money accepted by law and not because of its intrinsic worth (US dollar bill) Federal Reserve System Central banking system for the US. Divided into 12 districts and regulates and supervises member banks and makes policies concerning money Functions of the Federal Reserve 1. Controls the money supply 2. Clearing Checks 3. Supervising and regulating banks 4. Maintaining and circulating currency Money Supply Controls - Required Reserve Ratio - Discount Rate - Open Market Operations - the Fed can change the percentage of deposits banks are required to keep on hand - The Fed can change the interest rates it charges member banks to borrow money and lend out in loans - Buying and selling US Treasury Bills on the open market increases or decreases the amount of money in circulation