Types of Economies
Who makes the major economic decisions in a command economy?
The government
A business pays $2,000 per month in rent regardless of how many products it makes. Is this a fixed or variable cost?
Fixed
A business sells 10 T-shirts for $15 each. Calculate its total revenue.
$150
What are the main characteristics of perfect competition?
Interchangeable products, easy to enter the market
A small town has only one gas station because there are too few customers to support another. What type of monopoly is this?
Geographic
What is a mixed economy?
An economy that combines elements of a market and a command economy.
What is the difference between fixed costs and variable costs?
Fixed: stay the same month to month
Variable: change from month to month
What is profit? What is its formula?
Money made after subtracting costs
formula: profit = revenue - costs
How do businesses in monopolistic competition try to make their products different from competitors' products?
To get consumers to buy their product over competitors products
How can the government create a monopoly?
By giving a company a patent or a copyright?
A community decides what to produce based on customs passed down through generations. What type of economy is this?
Traditional
Identify two examples of fixed costs.
Rent
Business insurance
Equipment payments
What is revenue and what is its formula?
formula: Revenue = # of products sold x $ of the product
Why is it difficult for new businesses to enter an oligopoly?
Start up costs are very high
What is a natural monopoly, and what is an example of a natural monopoly?
a monopoly that happens when it is cheaper for one business to provide a good or service. Examples: any utility company
Explain one major difference between a market economy and a command economy.
Market: economic decisions are made by supply and demand & consumers
Command: economic decisions are made by the government
Identify two examples of variable costs
Materials
Hourly labor
Electricity bill
A business earns $5,000 in revenue and has $3,200 in costs. Calculate its profit.
$1,800
What is a monopoly, and how does it differ from the other types of competition?
When one business runs a market with no competition
What is a technological monopoly?
A country allows businesses to compete based on supply and demand but has the government control certain industries. What type of economy does this country have?
Mixed
Why is it important for a business to understand its costs of production?
So they can price their goods or services appropriately
Why is revenue alone not enough to determine whether a business is successful?
Because revenue does not account for costs
A market has many businesses selling similar products, but each business uses branding and advertising to stand out. What type of competition is this?
monopolistic competition
Explain the difference between a natural monopoly and a geographic monopoly.
Natural: occurs when it is cheaper for one business to provide a product
Geographic: when a population is too small to have more than one of a business