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econ > definitions theme 3 > Flashcards

definitions theme 3 Flashcards

1
Q

what is allocative efficiency

A

resources are allocated to the best interests of society, with max social welfare and utility
P=MC

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2
Q

what is AC

A

cost of production per unit:

TC
/
Quantity produced

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3
Q

what is AR

A

the price each unit is sold for

TR
/
Quantity sold

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4
Q

what is a bilateral monopoly

A

where there is only one buyer and one seller in the market

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5
Q

what is a cartel

A

a formal collusive agreement where firms enter into an agreement to mutually set prices

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6
Q

what is collusion

A

occurs when firms agree to work together, eg by setting a price or fixing their quantity produced

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7
Q

what is competitive tendering

A

when the government contracts out the provision of a good or service and invites firms to bid for the contract

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8
Q

what is a conglomerate integration

A

the merger of firms with no common connection

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9
Q

what’re constant returns to scale

A

output increases by the same proportion that the inputs increase by

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10
Q

what is a contestable market

A

when there is the threat of new entrants into the market, forcing firms to be efficient

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11
Q

what’re decreasing returns to scale

A

an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion

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12
Q

what is derived demand

A

the demand for 1 good is linked to the demand for a related good

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13
Q

what is diminishing marginal productivity

A

if a variable factor is increased when another factor is fixed, there will come a point when: each extra unit of the variable factor will produce less extra output than the previous unit; after a certain point, marginal output falls

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14
Q

what is diseconomies of scale

A

the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise

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15
Q

what is the principal agent problem also known as

A

divorce of ownership from control, whereby firms are owned by shareholders who have little say in the day-to-day running of the business

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16
Q

what is dynamic efficiency

A

efficiency in the long run; eg new technology and increases in productivity which causes efficiency to increase over a period of time

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17
Q

what’re external EoS

A

an advantage which arises from growth of the industry within which a firm operates, independent of the firm itself

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18
Q

what’re fixed costs

A

costs which do not vary with output

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19
Q

what is game theory

A

used to predict the outcome of a decision made by one firm, when it had incomplete information about the other

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20
Q

what is interdependence

A

the actions of 1 firm directly affects another firm

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21
Q

what is internal economies of scale

A

an advantage a firm has because of growth in the firm, independent to other firms or the general industry

22
Q

what is limit pricing

A

firms setting low prices in order to prevent new entrants

23
Q

what is is marginal cost/revenue

A

the additional cost/revenue from producing/selling an extra unit of good

24
Q

what is the minimum efficient scale

A

the lowest level of output necessary to fully exploit Eos

25
Q

what is monopolistic competition

A

where there are a large number of buyers and sellers who are relatively small and act independently, selling differentiated goods

26
Q

what is a monopoly/monopsony

A

a single seller/buyer in the market

27
Q

what is non-price competition

A

competition by firms on factors other than price, eg customer service or quality; aiming to increase the loyalty to the brand which makes demand more inelastic

28
Q

what is normal profit

A

the minimum reward required to keep firms supplying their enterprise, TC=TR

29
Q

what is occupational mobility of labour

A

the ease/speed at which labour can move from 1 job type to another

30
Q

what is overt collusion

A

collusion as a result of a formal agreement, eg a cartel

31
Q

what are the characteristics of perfect competition

A

a market with many buyers and sellers, homogenous goods, perfect information and no entry/exit barriers

32
Q

what are the characteristics of a perfectly contestable matket

A

a market with no entry barriers, where a firm can easily enter and compete against incumbent firms completely equally

33
Q

what is predatory pricing

A

when a large firm sets a low price that other new entrant firms make losses and are driven out of the market

34
Q

what is the difference between limit and predatory pricing

A

limit pricing is used by the existing supplier to restrict new entrants currently out of the market; predatory is what a supplier used to out the other existing market suppliers

35
Q

what is price leadership

A

where a firm sets prices and other firms tend to follow this as they are fearful of engaging in a price war

36
Q

what is the private sector

A

the part of the economy owned/run by individuals/groups of individuals

37
Q

what is productive efficiency

A

MC=AC, when resources are used for the max output at the lowest cost

38
Q

what is profit satisficing

A

when a firm earns just enough profit to keep its shareholders happy

39
Q

what’re consumer characteristics

A

rational consumption
utility satisficers
some inertia?

40
Q

what is the public sector

A

the part of the economy owned/controlled by local or central government

41
Q

what is regulatory capture

A

when regulators become too empathetic to firms they’re regulating, removing their impartiality and weakens their ability to regulate

42
Q

what is revenue maximisation

A

when firms produce at the point giving the most revenue

MR=0

43
Q

what is sales maximisation

A

when firms produce where they sell as many goods/services as possible without making a loss

AR=AC

44
Q

what is static efficiency

A

the level of efficiency at one point in time

45
Q

what’re sunk costs

A

costs which cannot be recovered once spent

46
Q

what is tacit collusion

A

collusion where there is no formal agreement, eg price leadership

47
Q

what is the TR and TC formulae

A

TR= P x QS
TC = TVC + TFC

48
Q

what is vertical integration

A

when a firm merges/takes over a firm in the same industry but at a different stage of production

49
Q

what is x-inefficiency

A

when firms produce at a cost above the AC curve

50
Q

what’re diminishing returns of labour

A

as businesses increase the amount of one input factor (eg labour) while keeping other inputs constant, the MRP of that input will eventually decrease

51
Q

what is the difference between deregulation and privatisation

A

privatisation: transfer of ownership and control of government owned industries to the private sector

deregulation: the removal/relaxation of government regulations on industries and markets.

econ (10 decks)

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