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economics > Economics Theme 3 > Flashcards

Economics Theme 3 Flashcards

1
Q

public sector

A

owned by the state , under direct control from the government

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2
Q

private sector

A

owned by individuals , not under direct control from the government t

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3
Q

what is organic (internal) growth

A

when a business expands its own operations

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4
Q

Advantages of organic growth (4)

A
  • less risk than external growth
  • financed through internal funds (profits)
  • builds on businesses existing strengths
    -grow at a more sensible rate in the long run
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5
Q

disadvantages of organic growth (3)

A

growth can be dependant on growth of overall market
- hard to build market share if business already leads
- slow growth. - shareholders may prefer more rapid growth of profits

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6
Q

what is external growth

A

grows through mergers or takeovers

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7
Q

what is horizontal integration

A

two business at same production stage join to become one.
e.g Volkswagen buying porsche

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8
Q

what is backwards vertical integration

A

where a company merges with another firm at a stage closer to the primary product

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9
Q

what is forwards vertical integration

A

where a company merges with another firm at a stage closer to the consumer

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10
Q

horizontal integration advantages (5)

A

improves profits and competitiveness - increased rates of internal economies of scale
lower costs. - rationalisation (cutting of employees)
justified by concept of synergies
diverisification of products. - reduces risks in business
removes rivals. - reduces competitors , increases market share and pricing power

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11
Q

what is meant by Synergy

A

when two companies together can produce more than two companies separate
e.g. 20 , 20. together make 60

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12
Q

rationalisation

A

making firm more cost efficient by removing uneccessay expenditure

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13
Q

Horizontal integration disadvantages (4)

A

risk of diseconomies of scale
reduced flexibility - more people to run by slows rate of innovation
risk destroying shareholder value. not make it
risk attracting investigation from regulators

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14
Q

vertical integration advantages (4)

A

control of supply chain - helps reduce CoP
improved access of raw materials - takes away from rival businesses

removes suppliers and market intelligence from competitors
better control over distribution channels

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15
Q

vertical integration disadvantages (5)

A

fewer economies of scale due to production being at different stages

create new problems such as communication / coordination

diseconomies of scale. - the bigger firm is more inefficient

create barriers to entry. - higher prices discouraging entry and competition

one off costs of purchase can be high

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16
Q

a conglomerate integration

A

process of merging/ acquiring companies which work in different industries
E.g
EBay and PayPal
Walt Disney and ABC

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17
Q

advantages of conglomerate integration. (2)

A

diversification. - spreading risk

cross selling and reaching customer - increases customer base

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18
Q

disadvantages of conglomerate integration. (2)

A

lack of experience. - has no experience of the industry

shift in focus - shift its focus onto a different business

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19
Q

total cost meaning

A

cost of producing a product. - fixed cost + variable cost

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20
Q

Average cost meaning

A

average costs of production per unit

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21
Q

total costs calculation

A

TC = TVC + TFC

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22
Q

Average costs calculation

A

AC = TC/Q

23
Q

Marginal costs. meaning

A

cost of producing an extra unit of output

24
Q

marginal costs calculation

A

Change in TC / change in Total output

25
Q

Average fixed costs meaning

A

average fixed costs of production

26
Q

AFC calculation

A

fixed costs / output

27
Q

AVC meaning

A

Average variable costs of production

28
Q

AVC calculation

A

Total variable costs / output

29
Q

revenue definition

A

income generated from the sales of goods or services

30
Q

total revenue calculation

A

TR= price per unit x Q

31
Q

Average revenue calculation

A

AR = price per unit = TR/output

32
Q

What is a firms shut down point in short run

A

Need to cover at least the AVC of production

33
Q

What is firms shutdown point in the long run

A

Need to cover both AVC and FC

34
Q

what is price discrimination

A

where a firm divides the market to charge different prices to different consumers , for reasons which do not reflect costs.

35
Q

conditions for price discrimination (4)

A

price setting power - not in a competitive market

elasticity of demand curves must differ for groups

ability to split the market

ability to maintain the market split

36
Q

Price discrimination benefits to consumers (3)

A

consumers brought into the market which could have been priced out

higher total output

Lower costs

profits finance possible R+D

37
Q

price discrimination for producers (3)

A

higher profits

profits in one market can cross subsidise loss making markets

can mean survival in recessions

38
Q

Monopolistic market assumptions (4)

A

low market concentration - many producers, many consumers

product differentiation - non price differences

price makers

low barriers to entry

39
Q

Oligopoly assumptions (6)

A

dominated by few large firms

high concentration ratio

product differentiation

high barriers to entry

high risk of collusion

firms interdependent

40
Q

draw oligopoly kinked demand curve

A
41
Q

non-pricing strategies (6)
A
B n
L
P
C s
P D

A

product differentiation
advertising
brand names
loyalty
packaging
customer service

42
Q

what is predatory pricing

A

setting prices below the level of costs of production
- illegal

43
Q

what is limit pricing

A

when firms operate below profit maximisation but still making a profit - deincensitves joining the market
- legal

44
Q

what is price wars

A

repeated cutting of prices to undercut competitors

45
Q

what is collusion

A

non competitive agreement between buisnesses which attempts to disrupt the market equillibrium
all forms of this is illegal

46
Q

types of collusion (4)

A

open agreements
price fixing
market sharing
bid rigging

tacit - implied agreements
price leadership

47
Q

Where two companies together can produce more than when separate

A

Synergy

48
Q

Removing unnecessary expenditure from a firm

A

Rationalisation.

49
Q

Economies of scale

A

Reduction in LRAC as output rises

50
Q

Internal EoS
Really
Fun
Mums
Try
Make
Pies

A

Risk ( spread opportunity cost )
Financial (Lower IR - less risk to bank )
Managerial (employ specialists )
Technical. ( R &D
Marketing
Purchasing ( bulk buy )

51
Q

External EoS

A

Transport infrastructure
Raw material industry moving closer (cut transport cost )
R&D move closer

52
Q

Diseconomies of scale

A

Buisness LRAC rise as output increases

53
Q

Reason for Diseconomies of scale
3Cs and M

A

Control ( control workforce )
Communication (difficult )
Coordination (hard to have eveyone on same page )
Motivation (less valued )

economics (6 decks)

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