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Econ A Level > Microeconomic Year 2 Definitions > Flashcards

Microeconomic Year 2 Definitions Flashcards

(51 cards)

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1
Q

Profit Maximisation

A

MC=MR

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2
Q

Sales Revenue Maximisation

A

MR=0

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3
Q

Sales Volume Maximisation

A

AC=AR

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4
Q

Growth Maximisation

A

A firm produces at a loss in the short term (AC>AR) to maximise market share growth

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5
Q

Principal-Agent Problem

A

Conflict between the objectives of the principals and their agents, who take decisions on their behalf

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6
Q

Principals

A

Business owners

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7
Q

Agents

A

Managers running a business on shareholders’ behalf

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8
Q

Social Welfare

A

A firm existing to benefit wider society

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9
Q

Corporate Social Responsibility

A

A firm acting to benefit wider society, the community or their employees

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10
Q

Profit Satisficing

A

Managers doing just enough to satisfy shareholders by producing satisfactory profits

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11
Q

Short Run

A

The period in which at least one factor of production is fixed in supply

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12
Q

Long Run

A

The period in which the firm is able to vary the inputs of all factors of production

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13
Q

Sunk Costs

A

Costs incurred by a firm that cannot be recovered if the firm ceases trading

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14
Q

Minimum Efficient Scale

A

Level of output at which long-run average costs stop falling as output increases

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15
Q

Economic Costs

A

Total cost + Opportunity cost

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16
Q

Perfect Competition

A

Market structure that produces allocative and productive efficiency in the long-run equilibrium
-Profit maximising
-Many buyers and sellers
-Homogeneous
-No barriers to entry or exit
-Perfect knowledge

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17
Q

Price Taker

A

A firm that must accept whatever price is set in the market as a whole

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18
Q

Allocative Efficiency

A

Achieved when consumer satisfaction is maximised. e.g. MC=MB, S=D, P=MC

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19
Q

Productive Efficiency

A

A firm operates at a minimum average total cost, choosing an appropriate combination of inputs (cost efficiency) and producing the maximum output possible from those inputs (technical efficiency). e.g. Bottom of AC curve

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20
Q

Homogenous Product

A

Products are seen as identical by consumers, there is no brand loyalty, so all products are perfect substitutes

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21
Q

Perfect Knowledge

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A

Buyers and firms know prices charged by other prices, and no firm has a superior production technique

22
Q

Monopoly - Monopoly

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A

Form of market structure in which only one seller of a good or service
-Maximise profits
-Single seller
-No substitutes
-Barriers to entry
-Imperfect knowledge

23
Q

Monopoly - Perfect/First-Degree Price Discrimination

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A

A monopoly firm is able to charge each consumer a different price

24
Q

Monopoly - Arbitrage

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A

Process which prices in two market segments will be equalised as a result of purchase and resale by market participants

25
Monopoly - Dynamic Efficiency
Lowering the position of the AC curve over time by improving production processes
26
Monopoly - X-Inefficiency
Actual average cost is above the AC curve due to lack of competitive pressure
27
Monopoly - Second-Degree Price Discrimination
Lower prices are charged when larger quantities are bought
28
Monopoly - Third-Degree Price Discrimination
Firm charges different prices for the same product to different market segments
29
Natural Monopoly - Natural Monopoly
Monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable
30
Natural Monopoly - Nationalisation
Where a privately owned firm or industry is taken into public ownership
31
Natural Monopoly - Privatisation
Where an enterprise in public ownership is returned to private ownership
32
Monopolistic Competition - Monopolistic Competition
A market that shares some characteristics of monopoly and some of perfect competition -Large number of firms -No dominant firm -Low/No barriers to entry -Product differentiation -Downward-sloping demand
33
Monopolistic Competition - Product Differentiation
A strategy firms adopt that marks their product as being different from their competitors'
34
Contestable Markets - Contestable Markets
A market in which the existing firm makes only normal profits, as it cannot set a price higher than average cost without attracting entry, owing to the absence of barriers to entry and sunk costs
35
Contestable Markets - Sunk Costs
Costs incurred by a firm entering the market that cannot be recovered if the firm ceases trading
36
Contestable Markets - Hit-And-Run Entry
Where a firm enters a market to take short-run supernormal profits knowing it can exit without incurring costs
37
Oligopoly - Oligopoly
A market with a few dominant sellers, in which each firm must take account of the behaviour and likely behaviour of rival firms in the industry -Few dominant firms -High barriers to entry -Non-price competition -Price makers -Interdependent decision making
38
Oligopoly - Non-Price Competition
A strategy whereby firms compete by advertising to encourage brand loyalty, or by quality or design, rather than on price
39
Oligopoly - Tacit Collusion
A situation occurring when firms refrain from competing on price, but without communication or formal agreement between them
40
Demand For Labour - Derived Demand
Where the demand for a factor of production or good derives not from the factor or good itself, but from the goods or services that it provides
41
Demand For Labour - Marginal Revenue Product Of Labour ( MRPL )
The additional revenue received by a firm as it increases output by using an additional unit of labour input. MRPL = MPPL * MR
42
Demand For Labour - Marginal Revenue Product Theory
A theory which argues that the demand for labour depends upon balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit of labour
43
Labour Supply - Non-Pecuniary Benefits
Benefits offered to workers by firms that are not financial in nature
44
Labour Supply - Transfer Earnings
The minimum payment required to keep a factor of production in its present use
45
Labour Supply - Economic Rent
A payment received by a factor of production over and above what would be needed to keep it in its present use
46
Interaction of Labour Markets - Monopsony
A market in which there is a single buyer of a good, service or factor of production
47
Interaction of Labour Markets - Trade Union
An organisation of workers that negotiates with employers on behalf of its members
48
Interaction of Labour Markets - Bilateral Monopoly
A situation in which a monopoly seller of labour faces a monopsony buyer of labour
49
Types of economies of scale
Purchasing - Specialisation Technical - Specialisation Managerial Financial Risk-Bearing Marketing External -More skilled labour -More regional capital
50
Types of diseconomies of scale
Internal: Control Coordination Cooperation External: Factor input Exhausted local supplies
51

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