A2 Defs

Question 0

Dynamic efficiency

Answer 0

An economic system that balances short term concerns with long run concerns, such as investing in research and development.

Question 1

Allocative efficiency

Answer 1

A situation where the value consumers place on goods and services equals the cost of resources used; it happens when price = marginal cost

Question 2

Vertical integration

Answer 2

When 2 firms in the SAME industry but at different stages of the production process merge.

Question 3

Horizontal integration

Answer 3

When 2 firms in the same industry and the same stage of production merge.

Question 4

X inefficiency

Answer 4

Inefficiency that occurs when a firm fails to minimise its costs of production (eg where there is no competitive pressure)

Question 5

Static efficiency

Answer 5

How much output can be produced at this moment in time from a stock of resources

Question 6

Monopoly

Answer 6

A market structure where one firm supplies all output in the industry without facing competition because of high barriers to entry in that business

Question 7

Price discrimination

Answer 7

Charging a different price for the same goods or services in different markets

Question 8

Oligopoly

Answer 8

Supply in the industry is concentrated in relatively few firms and the firms are interdependent (ie action of one firm directly affects another firm). There are also barriers to entry.

Question 9

Collusion

Answer 9

Collective agreements between producers which restrict competition

Question 10

Collusive oligopoly

Answer 10

Where firms in an oligopolistic industry form a cartel, typically to restrict output and raise prices and profits

Question 11

Tacit collusion

Answer 11

Where firms collude without a formal agreement or even explicit communication between them

Question 12

Interdependence

Answer 12

Where actions of one firm will have an impact on other firms

Question 13

Efficiency

Answer 13

2 static types:
Productive efficiency where production takes place at least cost
Allocative efficiency concerns whether resources are used to produce goods and services for consumers to buy at a point in time
Dynamic efficiency = same, but over a period of time

Question 14

Perfect competition

Answer 14

A market where there is a high degree of competition. 4 characteristics:

• many buyers and sellers with no-one large enough to influence price (all price takers)
• freedom of entry and exit (no/ low barriers to entry)
• buyers and sellers have perfect knowledge of prices
• all firms have homogeneous (identical)’product

Question 15

Labour market

Answer 15

The demand and supply of labour to a market

Question 16

Labour demand

Answer 16

Demand curve may shift right due to:

• improved productivity eg new technology
• rise in selling price
• price of capital increases so firms substitute labour

Question 17

Labour supply

Answer 17

The labour supply curve might move right if:

• number of workers in population increases ( eg demographic trends, tax or other incentives)
• wages go down in other industries making this one attractive

Question 18

Minimum wage legislation

Answer 18

Government policy to address low pay by enforcing minimum wage rates on employers. Currently £6.50 per hour for a 21 year old

Question 19

Monopsony

Answer 19

Where a firm is the sole buyer of labour. ( eg teachers in state schools all paid by Government)

Question 20

Market concentration

Answer 20

The degree to which the output of the industry is dominated by its largest producers

Question 21

Trade union

Answer 21

An organisation of workers who combine together to give them greater bargaining powers to further their own interests

Question 22

Economic cycle

Answer 22

The fluctuation in the rate of growth of output through four phases: boom, recession, slump and recovery

Question 23

National income measures

Answer 23

Used by policy makers to test hypotheses concerning national output, national expenditure and national income over a period of time.
Most common measure is Gross domestic product (GDP) but also GNP and NNP (net national product)

Question 24

Inflation

Answer 24

A sustained general rise in prices

Question 25

Deflation

Answer 25

A fall in the price level or slowdown in rate of growth of the economy

Question 26

Unemployment

Answer 26

The number of people out of work at a point in time. Four types:

• frictional (time between jobs)
• Seasonal (jobs only available one season)
• structural (demand has shrunk eg region, tech)
• cyclical (lack of demand in recession)

Question 27

Philips curve

Answer 27

There is a trade off between unemployment and inflation in the short run;
In the long run when unemployment is at its natural level there is no trade off - higher demand simply Leads to inflation.

Question 28

Fiscal policy

Answer 28

Decisions about spending, taxes and borrowing of the government. Expansionary when it increases aggregate demand

Question 29

Monetary policy

Answer 29

Attempts by government or the central bank to manipulate the money supply, the supply of credit, interest rates or any other monetary variables, to achieve policy goals such as price stability

Question 30

Supply side policy

Answer 30

Government policy designed to increase the productive potential of the economy and push the long run aggregate supply curve to the right