definitions

Question 1

Medium of exchange

Answer 1

money can be used to exchange, goods and services and avoid the double coincidence of
wants

Question 2

Normal profit

Answer 2

The minimum level of profit needed to keep a firm in the market in the long run

Question 3

Price maker

Answer 3

Affirm the influences price when it changes its output

Question 4

Price taker

Answer 4

Affirm that has no influence on the price

Question 5

Productivity

Answer 5

Output per worker per unit of time

Question 6

Profit maximisation

Answer 6

achieving the highest possible profit where MC=MR

Question 7

short run

Answer 7

A period of time, during which, at least one factor of production is fixed in its supply (usually capital)

Question 8

Long run

Answer 8

A period of time, during which all factors of production are fixed in its supply

Question 9

total revenue

Answer 9

Price x quantity sold

Question 10

Barriers to entry

Answer 10

Obstacles that prevent new competitors from easy The, entering in an industry or area of business

Question 11

Barriers to exit

Answer 11

obstacles in the part of a firm, which wants to leave a given market or industrial sector

Question 12

supernormal profit

Answer 12

A payment over and above normal profit
For example, profit where AR>AC

Question 13

economies of scale

Answer 13

where an increase in the scale of production leads to a decrease in LRAC

Question 14

Dis economies of scale

Answer 14

where an increase in the scale of production leads to an increase in LRAC

Question 15

external disceconomies of scale

Answer 15

when an increase in the scale of production leads to a increase in LRAC due to growth of the industry in which the firm operates

Question 16

external economies of scale

Answer 16

When an increase in the scale of production lead to a decrease in LRAC due to growth of the industry in which the firm operates

Question 17

Internal economies of scale

Answer 17

when an increase in the scale of production leads to a decrease in LRAC, due to the growth of the firm itself

Question 18

internal diseconomies of scale

Answer 18

When an increase in the scale of production leads to an increase in LRC due to growth of the firm itself

Question 19

Law of diminishing marginal returns

Answer 19

The decrease in the marginal output of a production process, as the amount of a single factor of production is increased

Question 20

Marginal returns

Answer 20

The extra output derived per extra unit of factor employed (usually labour)

Question 21

increasing returns to scale

Answer 21

output increases by a larger proportion than the increase in inputs during the production process

Question 22

constant returns to scale

Answer 22

output increases by an equal proportion to the increase in inputs during the production process

Question 23

decrease returns to scale

Answer 23

output increase by a lower proportion than increase in inputs during the production process

Question 24

concentration ratio

Answer 24

the percentage of an industry which can be accounted for by the largest firms

Question 25

constestable market

Answer 25

A market in which there are no barriers to entry and exit, and the costs facing both incumbent and new firms are equal

Question 26

hit and run entry

Answer 26

Firms can quickly enter a market where there are supernormal profits, and leave it when the profits disappear

Question 27

Sunk costs

Answer 27

costs incurred by a firm, that cannot be recovered, if the firm Ceases trading

Question 28

features of perfect competition

Answer 28

– Many firms – Homogenous products – Normal profit (long run) – Perfect information – No barriers to entry or exit – Price competition only – Price takers

Question 29

features of monopolistic competition

Answer 29

– Some unique products – Many firms – Normal profit (long run) – Low barriers to entry or exit – Price and non-price competition – Some price setting power

Question 30

features of an oligopoly

Answer 30

– Very few firms – Some unique products – Supernormal profit – Imperfect information – High barriers to entry or exit – Price and non-price competition – Interdependence – price makers

Question 31

features of monopoly

Answer 31

– One firm – Unique products – supernormal profit – High barriers to entry – Price and non-price competition – Price makers – Imperfect information

Question 32

Features of a contestable market

Answer 32

– No brand loyalty – No barriers to entry or exit – No supernormal profits (long run) – Hit and run entry – Same costs and tech for New and existing firms – no sunk costs – Allocative and productive efficiency – No dynamic efficiency – Lack of collusion

Question 33

division of labour

Answer 33

A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages

Question 34

dominant strategy

Answer 34

a strategy that earns a player a larger payoff, irrespective of what other players do

Question 35

dynamic efficiency

Answer 35

form of productive efficiency that benefits a firm over time ( in terms of developing a new product )

Question 36

first degree PD

Answer 36

where different prices are given to individual customers for the same product for reasons not associated with cost

Question 37

game theory

Answer 37

a theory of how decision makers are influenced by the actions and reaction of others

Question 38

interdependence

Answer 38

where the actions of one firm effects the sales and revenue of other firms within the market

Question 39

kinked demand curve

Answer 39

a demand curve made up of 2 parts, it suggests oligopolists follow each others price reductions but not price rises

Question 40

oligopoly

Answer 40

market stucture dominated by few large firms

Question 41

profit satisficing

Answer 41

aiming for a satisfactory level of profit rather than the highest level of profit possible

Question 42

Second-degree price discrimination

Answer 42

Where different prices are charged for different quantities of of a product, larger quantities may be available at a lower price

Question 43

X. Inefficiency.

Answer 43

The difference between actual cost and attainable costs

Question 44

3rd° price discrimination

Answer 44

Where the same product is sold to different consumers in different markets are different prices. These consumers may be grouped by characteristics.

Question 45

Specialisation

Question 46

natural monopoly

Answer 46

Average cost diminishes over a large range of output as there are very high fixed costs that are spread out over increasing levels of output