Question: The basic model of pure competition reviewed

> “When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed.” Explain.

> “Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Do you agree? Explain why or why not.

> Why does the Federal Reserve require commercial banks to have reserves? Explain why reserves are an asset to commercial banks but a liability to the Federal Reserve Banks. What are excess reserves? How do you calculate the amount of excess reserves held

> What is the difference between an asset and a liability on a bank’s balance sheet? How does net worth relate to each? Why must a balance sheet always balance? What are the major assets and claims on a commercial bank’s balance sheet?

> Why is the banking system in the United States referred to as a fractional reserve bank system? What is the role of deposit insurance in a fractional reserve system?

> A firm in a purely competitive industry is currently producing 1,000 units per day at a total cost of $450. If the firm produced 800 units per day, its total cost would be $300, and if it produced 500 units per day, its total cost would be $275. What are

> Explain why merchants accepted gold receipts as a means of payment even though the receipts were issued by goldsmiths, not the government. What risk did goldsmiths introduce into the payments system by issuing loans in the form of gold receipts?

> What “backs” the money supply in the United States? What determines the value (domestic purchasing power) of money? How does the purchasing power of money relate to the price level? Who in the United States is responsible for maintaining money’s purchasi

> Explain and evaluate the following statements: a. The invention of money is one of the great achievements of humankind, for without it the enrichment that comes from broadening trade would have been impossible. b. Money is whatever society says it is. c

> What are the components of the M1 money supply? What is the largest component? Which of the components of M1 is legal tender? Why is the face value of a coin greater than its intrinsic value? What near-monies are included in the M2 money supply?

> Which two of the following financial institutions offer checkable deposits included within the M1 money supply: mutual fund companies; insurance companies; commercial banks; securities firms; thrift institutions? Which of the following items is not inclu

> What are the three basic functions of money? Describe how rapid inflation can undermine money’s ability to perform each of the three functions.

> True or False: The financial crisis hastened the ongoing process in which the financial services industry was transforming from having a few large firms to many small firms.

> City Bank is considering making a $50 million loan to a company named SheetOil that wants to commercialize a process for turning used blankets, pillowcases, and sheets into oil. This company’s chances for success are dubious, but City Bank makes the loan

> James borrows $300,000 for a home from Bank A. Bank A resells the right to collect on that loan to Bank B. Bank B securitizes that loan with hundreds of others and sells the resulting security to a state pension plan, which at the same time purchases an

> Which of the following is not a function of the Fed? a. Setting reserve requirements for banks. b. Advising Congress on fiscal policy. c. Regulating the supply of money. d. Serving as a lender of last resort.

> A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in the economy is 5 percent. This firm is earning $5.50 on every $50 invested by its founders. What is its percentage rate of return? Is the firm earning an e

> An important reason why members of the Federal Reserve’s Board of Governors are each given extremely long, 14-year terms is to: a. Insulate members from political pressures that could result in inflation. b. Help older members avoid job searches before

> Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates? a. The Federal Reserve System. b. The 12 Federal Reserve Banks. c. The Board of Governors of the Federal Reserve System. d. The Federal Op

> Recall the formula that states that $V = 1/P, where V is the value of the dollar and P is the price level. If the price level falls from 1 to 0.75, what will happen to the value of the dollar? a. It will rise by a third (33.3 percent). b. It will rise b

> Suppose that a small country currently has $4 million of currency in circulation, $6 million of checkable deposits, $200 million of savings deposits, $40 million of small denominated time deposits, and $30 million of money market mutual fund deposits. Fr

> The three functions of money are: a. Liquidity, store of value, and gifting. b. Medium of exchange, unit of account, and liquidity. c. Liquidity, unit of account, and gifting. d. Medium of exchange, unit of account, and store of value.

> Suppose that Lady Gaga goes to Las Vegas to play poker and at the last minute her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. Will Lady Gaga wager more or less as a result of the reimbursement offer? W

> Assume that securitization combined with borrowing and irrational exuberance in Hyperville have driven up the value of existing financial securities at a geometric rate, specifically from $2 to $4 to $8 to $16 to $32 to $64 over a 6-year time period. Ove

> Suppose the price level and value of the U.S. dollar in year 1 are 1 and $1, respectively. If the price level rises to 1.25 in year 2, what is the new value of the dollar? If, instead, the price level falls to .50, what is the value of the dollar?

> Assume that Jimmy Cash has $2,000 in his checking account at Folsom Bank and uses his checking account card to withdraw $200 of cash from the bank’s ATM machine. By what dollar amount did the M1 money supply change as a result of this single, isolated tr

> Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation = $700; Money market mutual funds (MMMFs) held by individuals = $400; Corporate bonds = $300; Iron ore deposits = $50; Currency in co

> How can patents speed up the process of creative destruction? How can patents slow down the process of creative destruction? How do differences in manufacturing costs affect which industries would be most likely to be affected by the removal of patents?

> Suppose that this year’s nominal GDP is $16 trillion. To account for the effects of inflation, we construct a price-level index in which an index value of 100 represents the price level five years ago. Using that index, we find that this year’s real GDP

> Suppose GDP is $15 trillion, with $8 trillion coming from consumption, $2.5 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $1 trillion coming from net exports. Also suppose that across the whole economy, per

> Assume the following information for a hypothetical economy in year 1: money supply = $400 billion; long-term annual growth of potential GDP = 3 percent; velocity = 4. Assume that the banking system initially has no excess reserves and that the reserve r

> Suppose that the money supply and the nominal GDP for a hypothetical economy are $96 billion and $336 billion, respectively. What is the velocity of money? How will households and businesses react if the central bank reduces the money supply by $20 billi

> Suppose GDP is $16 trillion, with $10 trillion coming from consumption, $2 trillion coming from gross investment, $3.5 trillion coming from government expenditures, and $500 billion coming from net exports. Also suppose that across the whole economy, dep

> Suppose that California imposes a sales tax of 10 percent on all goods and services. A Californian named Ralph then goes into a home improvement store in the state capital of Sacramento and buys a leaf blower that is priced at $200. With the 10 percent s

> Suppose that this year a small country has a GDP of $100 billion. Also assume that Ig = $30 billion, C = $60 billion, and Xn = - $10 billion. How big is G? a. $0. b. $10 billion. c. $20 billion. d. $30 billion.

> A small economy starts the year with $1 million in capital. During the course of the year, gross investment is $150,000 and depreciation is $50,000. How big is the economy’s stock of capital at the end of the year? a. $1,150,000. b. $1,100,000. c. $1,00

> Which of the following transactions would count in GDP? Select one or more of the answers from the choices shown. a. Kerry buys a new sweater to wear this winter. b. Patricia receives a Social Security check. c. Roberto gives his daughter $50 for her bi

> Tina walks into Ted’s sporting goods store and buys a punching bag for $100 dollars. That $100 payment counts as ________________ for Tina and _______________ for Ted. a. Income; Expenditure. b. Value added; Multiple Counting. c. Expenditure; Income. d.

> “Ninety percent of new products fail within two years—so you shouldn’t be so eager to innovate.” Do you agree? Explain why or why not.

> Suppose that purely competitive firms producing cashews discover that P exceeds MC. Will their combined output of cashews be too little, too much, or just right to achieve allocative efficiency? In the long run, what will happen to the supply of cashews

> Suppose that a monopolistically competitive restaurant is currently serving 230 meals per day (the output where MR = MC). At that output level, ATC per meal is $10 and consumers are willing to pay $12 per meal. What is the size of this firm’s profit or l

> Suppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in

> Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 23%, 22%, 18%, 12%, 11%, 8%, and 6%. What is the four‐firm concentration ratio of the hamburger industry i

> Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium. Assuming constant costs, employ these diagrams to show how (a) an increase and (b) a decrease in market demand will upset that long-run equilib

> Which of the following best describes the efficiency of monopolistically competitive firms? a. Allocatively efficient by productively inefficient. b. Allocatively inefficient but productively efficient. c. Both allocatively efficient and productively ef

> In the small town of Geneva, there are 5 firms that make watches. The firms’ respective output levels are 30 watches per year, 20 watches per year, 20 watches per year, 20 watches per year, and 10 watches per year. The four-firm concentration ratio for t

> There are 10 firms in an industry, and each firm has a market share of 10 percent. The industry’s Herfindahl index is: LO1 a. 10. b. 100. c. 1,000. d. 10,000.

> Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be: a. Upward sl

> Did the eventual recovery of the unemployment rate after the Great Recession indicate recovery in all aspects of employment? Explain and give examples

> Jean Baptiste Colbert was the Minister of Finance under King Louis XIV of France. He famously observed, “The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissi

> A retailer has a beginning monthly inventory valued at $100,000 at retail and $61,000 at cost. Net purchases during the month are $190,000 at retail and $115,000 at cost. Transportation charges are $10,500. Sales are $225,000. Markdowns and discounts equ

> A retailer has yearly sales of $900,000. Inventory on January 1 is $360,000 (at cost). During the year, $660,000 of merchandise (at cost) is purchased. The ending inventory is $325,000 (at cost). Operating costs are $90,000. Calculate the cost of goods s

> Present two situations in which it would be advisable for a retailer to take a markdown instead of carry over merchandise from one budget period to another.

> Contrast the weeks’ supply method and the percentage variation method of merchandise planning.

> Why use sophisticated weather forecasting services if daily weather predictions tend to be inaccurate?

> Why should a local appliance store designate control units, even though this may be time-consuming?

> Explain the basic premise of the retail method of accounting. Present an example.

> The FIFO method seems more logical than the LIFO method, because it assumes the first merchandise purchased is the first merchandise sold. So, why do many more retailers use LIFO?

> Which retailers can best use a perpetual inventory system based on the cost method? Explain your answer.

> 1. A retailer can sell 100 printers per month at a price of $200 each or 275 printers per month at a price of $175 each. What is the elasticity of demand (expressed as a positive number)? a. 0.40 b. 1.00 c. 1.65 d. 7.01 2. If the retailer in problem 1 c

> How are the terms gap analysis and scenario analysis interrelated?

> 11. A retailer has purchased a line of suits for $200 each. The selling price is $375 per suit. What is the markup at retail? a. 46.7% b. 57.1% c. 75.0% d. 175.0% 12. A retailer has net annual sales of $300,000. Retail expenses are $75,000. Net profit i

> 1. A retailer uses a perpetual inventory system. Compute the firm's end-of-month inventory at cost, if monthly sales (at cost) = $600,000; monthly sales (at retail) = $750,000; monthly purchases (at cost) = $250,000; and beginning inventory (at cost) = $

> A retailer buys items for $65. At an original retail price of $89, it expects to sell 1,000 units. a. If the price is marked down to $79, how many units must the retailer sell to earn the same total gross profit it would attain with an $89 price? b. If t

> Under what circumstances do you think unbundled pricing is a good idea? A poor idea? Why?

> What are the pros and cons of everyday low pricing to a retailer? To a manufacturer?

> At the end of the year, the retailer in question 8 determines that actual operating expenses are $160,000, actual profit is $120,000, and actual sales are $650,000. What is the maintained markup percentage? Explain the difference in your answers to quest

> A firm has planned operating expenses of $200,000, a profit goal of $130,000, and planned reductions of $35,000 and expects sales of $700,000. Compute the initial markup percentage.

> A gift store charges $25.00 for a ceramic figurine; its cost is $14.00. What is the markup percentage (at cost and at retail)?

> A car dealer purchases on-dashboard GPS systems for $100 each and desires a 35 percent markup (at retail). What retail price should be charged?

> A beauty supply retailer wants to receive a 35 percent markup (at retail) for all merchandise. If a magnifying mirror retails for $11 per tile, what is the maximum that the retailer would be willing to pay for a magnifying mirror?

> What is the value of the global retail development index?

> Explain why markups are usually computed as a percentage of selling price rather than of cost.

> Give an example of a price strategy that integrates demand, cost, and competitive criteria.

> Comment on each of the following from the perspective of a large retailer. a. Horizontal price fixing. b. Vertical price fixing. c. Price discrimination. d. Minimum-price laws. e. Unit pricing.

> Why is it important for retailers to understand the concept of price elasticity even if they are unable to compute it?

> Present a community relations program for a pharmacy chain.

> Do you agree with upscale retailers’ decision not to provide in-store shopping carts? What realistic alternatives would you suggest? Explain your answers.

> How could a neighborhood paint supply store engage in solutions selling?

> Which stores should not use a curving (free-flowing) layout? Explain your answer.

> Develop a purchase motivation product grouping for an online men’s apparel retailer.

> Present a planogram for a nearby bank.

> What is benchmarking? Present a five-step procedure to do retail benchmarking.

> What is meant by selling, merchandise, personnel, and customer space?

> Which aspects of a store’s exterior are controllable by the retailer? Which are uncontrollable?

> Define the concept of atmosphere. How does this differ from that of visual merchandising?

> How could a store selling new computers project a value-based retail image? How could a store selling used computers project such an image?

> Why is it sometimes difficult for a retailer to convey its image to consumers? Give an example of a restaurant with a fuzzy image.

> For each of these promotional objectives, explain how to evaluate promotional effectiveness: a. To increase impulse purchases of candy. b. To project a reliable image. c. To increase customer loyalty rates.

> Develop a checklist for a chain of large sporting goods stores to coordinate its promotional plan.

> Explain the hierarchy of effects from a retail perspective. Apply your answer to a new auto dealer.

> Develop sales promotions for each of the following: a. A nearby strip shopping center. b. A new restaurant. c. An upscale discount online furniture retailer.

> What are the pros and cons of coupons?

> Cite five performance measures commonly used by retailers, and explain what could be learned by studying each.

> How can advertising, public relations, personal selling, and sales promotion complement each other for a retailer?

> Are there any retailers that should not use sales promotion? Explain your answer.

> Are there any retailers that should not use personal selling? Explain your answer.

> How can a local pharmacy try to generate positive publicity?

> How do manufacturer and retailer cooperative advertising goals overlap? How do they differ?

> How would an advertising plan for an online-only gift retailer differ from that of a bricks-and-mortar gift store chain?