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Microeconomics > Chapter 4 > Flashcards

Chapter 4 Flashcards

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1
Q

What is production

A

Converts inputs or factor services into outputs of goods and services

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2
Q

What are factors of production

A

Inputs into the production process, such as land, labour, capital and enterprise

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3
Q

What is the productivity gap

A

The difference between labour productivity e.g in the uk and in other developed economies

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4
Q

What is productivity

A

Output per unit of input

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5
Q

What is labour productivity

A

Output per worker

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6
Q

What is capital productivity

A

Output per unit of capital

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7
Q

What is a firm

A

A productive organisation which sells its output of goods and of services commercially

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8
Q

What is specialisation

A

A worker only performing one task or a narrow range of tasks. Also different firms specialising in producing different goods or services

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9
Q

What is the division of labour

A

This concept goes hand in hand with specialisation. Different workers perform different tasks in the course of producing a good or services

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10
Q

What is trade

A

The buying and selling of goods and or services

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11
Q

What is exchange

A

To give something in return for something else received. Money is a medium of exchange

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12
Q

What is the marginal returns of labour

A

The change in quantity of total output resulting from the employment of one more worker holding all the other factors of production fixed

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13
Q

What is the law of diminishing marginal returns

A

A short term law that states that as a variable factor of production is added to a fixed factor of production, both the marginal and eventually the average returns to the variable factor will begin to fall

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14
Q

What is total returns

A

The whole output produced by all the factors of production including labour employed by a firm

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15
Q

What is average returns of labour

A

Total output divided by the total numbers of workers employed

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16
Q

What is returns to scale

A

The rate by which output changes if the scale of factors of production is changed

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17
Q

What is a plant

A

An establishment such as a factory, a workshop or retail outlet, owned by and operated by a firm

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18
Q

What is increasing returns to scale

A

When the scale of all the factors of production employed increases, output increases at a faster rate

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19
Q

What is a fixed cost

A

Cost of production which in the short run does not change with output

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20
Q

What is a variable cost

A

Cost of production which changes with the amount that is produced even in the short run

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21
Q

What is total cost

A

All the cost incurred when producing a particular size of output

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22
Q

What is average variable cost

A

Total variable cost divided by the size of output

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23
Q

What is marginal cost

A

Addition to total cost resulting from producing one additional unit of output

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24
Q

What is average fixed cost

A

Total cost of employing the fixed factors of production to produce a particular level of output divided by the size of output

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25
What is average total cost
Total cost of producing a particular level of output divided by the size of output
26
What is economies of scale
As output increases long run average cost falls
27
What is diseconomies of scale
As output increases long run average cost rises
28
What are internal economies and diseconomies of scale
Changes in long run average costs of production resulting from changes in the size of scale of a firm or plant
29
What is an external economy of scale
A fall in long run average costs of production resulting from the growth of the market or industry of which the firm is a part
30
What is an external diseconomies of scale
An increase in long run average costs of production resulting from the growth of the market or industry of which the firm is a part
31
What is total revenue
All the money received by a firm for selling its output
32
What is average revenue
Total revenue divided by output
33
What is marginal revenue
Addition to total revenue resulting from the sale of one more unit of the product
34
What is perfect competition
A market that displays six conditions of : A large number of buyers and sellers Perfect market information Ability to buy or sell as much as desired at the ruling market price The inability of a buyer or seller to influence the market price A uniform or homogenous product No barriers to entry or exit in the long run
35
What is a price taker
A firm which is so small that it has to accept the ruling market price. If the firm raises it price it loses all its sales if it cuts its price it gains no advantage
36
What is a price maker
When a firm faces a downward sloping demand curve for its product it possesses the market power to set the price at which it sells the product
37
What is a quantity setter
When a firm faces a downward sloping demand curve for its product it possesses the market power to set the quantity of the good it wishes to sell
38
What is profit
The difference between total sales revenue and total costs of production
39
What is profit maximisation
Occurs at the level of output at which total profit is greatest
40
What is normal profit
The minimum profit a firm must make to stay in business which is however insufficient to attract new firms into the market
41
What is abnormal profit
Profit over and above normal profit
42
What is technological change
A term used to describe the overall effect of invention, innovation and the diffusion or spread of technology in the economy
43
What is invention
Making something entirely new something that did not exists before at all
44
What is innovation
Improves on or makes a significant contribution to something that has already been invented thereby turning the results of invention into a product
45
What is productive efficiency
For the economy as a whole occurs when it is impossible to produce more of one good without producing less of another For a firm it occurs when the average total cost of production is minimised
46
What is dynamic efficiency
Measures improvements in productive efficiency that occur in the long run over time
47
What is monopolistic competition
A market structure in which firms have many competitors but each one sells a slightly different product
48
What is creative destruction
Capitalism evolving and renewing itself over time through new technologies and innovations replacing older technologies and innovations
49
Name the several types of internal economies of scale
``` Technical economies of scale Managerial economies of scale Marketing economies of scale Financial or capital raising economies of scale Risk bearing economies of scale Economies of scope ```
50
Name the several types of diseconomies of scale
Managerial diseconomies of scale Communication failure Motivational diseconomies of scale
51
Technical economies of scale are caused by
``` Indivisibilities The spreading of research and development costs Volume economies Economies of massed resources Economies of vertically linked processes ```
52
What is indivisibilities?
Many types of plant or machinery are indivisible in the sense that there is a certain minimum size below which they cannot efficiently operate
53
What’s the spreading research and development costs ?
Large plants research and development costs can be spread over a much longer production run reducing unit costs in the long run
54
What are volume economies
Costs increase less rapidly than capacity | Industries such as transport, storage and warehousing
55
What are economies of massed resources?
Operation of a number of identical machines in a large plant means that proportionately fewer spare parts need to be kept than when the fewer machines are involved
56
What are economies of vertically linked processes
Linking of processes in a single plant can lead to saving in time, transport costs and energy
57
What are managerial economies of scale?
Large the scale the firm the greater its ability to benefit from the specialisation and division of labour within management
58
What is marketing economies of scale?
Bulk buying and bulk marketing | can use market power to buy supplies at lower prices
59
What are financial and capital raising economies of scale?
bulk borrowing of financial funds to finance business expansion larger firms can borrow at lower interest rates
60
What are risk bearing economies of scale?
large firms are usually less exposed to risk than small firms because risks can be grouped and spread
61
What are economies of scope?
factors that make it cheaper to produce a range of products together than to produce each on of them on its own
62
What are some internal diseconomies of scale?
Managerial diseconomies of scale communication failure motivational diseconomies of scale
63
What is managerial diseconomies of scale?
as a firm grows in size administration of the firm becomes more difficult delegation of managerial functions to people lower in the organisation who lack appropriate experience
64
what is communication failure?
in a larger organisation there may be too many layers of management between the top managers ordinary production workers
65
What is motivational diseconomies of scale?
With large firms it is often difficult to satisfy and motivate workers
66
What is the role of profit in market economy?
- the creation of worker incentives - the creation of shareholder incentives - profits and resource allocation - profit as a reward for innovation and risk taking - profit as a source of business finance

Microeconomics (8 decks)

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