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Economics > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

Average revenue (AR)

A

Price per unit sold

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2
Q

Allocative efficiency

A

When resources are allocated to the best interests of society, when
there is maximum social welfare and maximum utility; P=MC

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2
Q

Asymmetric
information

A

When one party possess more information than another - this can lead to market failures and causes problems for regulators

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3
Q

Average cost/average
total cost (AC/ATC)

A

Cost of production per unit

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4
Q

Bilateral monopoly

A

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

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5
Q

Cartels

A

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

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6
Q

Collusion

A

When two or more firms work together and agree to set the price or output levels

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7
Q

Competition policy

A

Government action to increase competition in the market

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8
Q

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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9
Q

Conglomerate
integration

A

A merger between firms with unrelated business activities

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10
Q

Constant returns to
scale

A

The proportion of the increase in outputs is the same as the proportion increase in inputs

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11
Q

Contestable market

A

Forces firms to be more efficient as there is the threat of the entry of new firms

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12
Q

Decreasing returns to
scale

A

An increase in the proportion of inputs leads to a smaller increase in the proportion of outputs

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13
Q

Demerger

A

When a firm gets broken down into two or more separate firms to operate on their own, to be sold or to be dissolved

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14
Q

Deregulation

A

Removal of legal barriers to allow private enterprises to compete in a previously protected market

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15
Q

Derived demand

A

The demand for one good is linked to the demand of a related good

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16
Q

Diminishing marginal
productivity

A

if more variable input units are used along with a certain amount of fixed inputs, the overall output might grow at a faster rate initially, then at a steady rate, but ultimately, it will grow at a declining rate

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17
Q

Diseconomies of scale

A

when a company or business grows so large that the cost per unit increase - increase in costs when output is increased

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18
Q

Divorce of ownership
from control

A

refers to the scenario where a company’s ownership and management control lie in entirely different hands. In simple terms, those who own a company (the shareholders) aren’t the same people making daily business decisions (the managers or directors).

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19
Q

Dynamic efficiency

A

involves improving allocative and productive efficiency over time. This can mean developing new or better products and finding better ways of producing goods and services

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20
Q

Economies of scale

A

Economies of scale are cost advantages reaped by companies when production becomes efficient. Companies can achieve economies of scale by increasing production and lowering costs. This happens because costs are spread over a larger number of goods.

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21
Q

External economies of
scale

A

External economies of scale occur when a whole industry grows larger and firms benefit from lower long-run average costs

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22
Q

Fixed cost

A

Costs that do not vary with output

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23
Q

Geographical mobility
of labour

A

The ease and speed at which workers can move from one type job to another

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23
Q

Horizontal integration

A

A merger between firms within the same industry and at the same stage of the production process

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23
Q

Game theory

A

Used to predict the outcome

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24
Q

Increasing returns to
scale

A

A increase in the proportion of inputs by a certain proportion leads to a larger increase in the proportion of outputs

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25
Q

Interdependent

A

Actions of one firm directly affects another firm

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26
Q

Internal economies of
scale

A

An advantage that a firm is able to enjoy because of growth in the
firm, independent of anything happening to other firms or the industry in general

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27
Q

Limit pricing

A

Setting the price low so that new entrants are prevented from entering the market (used in contestable markets)

28
Q

Loss

A

When revenue does not cover costs

29
Q

Marginal revenue

A

The additional revenue gained by selling one extra unit of a good

29
Q

Marginal cost

A

The additional cost of producing one extra unit of a good

30
Q

Maximum wage

A

The ceiling wage people cannot earn above

31
Q

Minimum efficient
scale

A

Lowest level of output necessary to fully exploit economics of scale

32
Q

Minimum wage

A

The floor wage where no one can earn below

33
Q

Monopolistic
competition

A

Large number of buyers and sellers that are relatively small selling non-homogenous goods

34
Q

Monopoly

A

A single seller in the market

35
Q

N-firm concentration
ratio

A

a common measure of market structure and shows the combined market share of the n largest firms in the market

36
Q

Nationalisation

A

the process of taking privately-controlled companies, industries, or assets and putting them under the control of the government

37
Q

Non-collusive
oligopoly

A

the situation where the firms compete with each other and follow their own price and quantity and output policy independent of its rival firms

38
Q

Non-price competition

A

Non-price competition involves ways that firms seek to increase sales and attract custom through methods other than price. Non-price competition can include quality of the product, unique selling point, superior location and after-sales service

39
Q

Normal profit

A

Where total costs are equal to total revenue (break-even point)

40
Q

Not-for-profit business

A

Where firms are run to maximise social welfare and help individuals and groups (any profit made is used to support their aims)

41
Q

Occupational mobility
of labour

A

refers to the ease with which a worker can leave one job for another in a different field

42
Q

Oligopoly

A

Small number of dominant firms who have the majority of the market share, they act interdependently.

43
Q

Organic growth

A

When firms grow by increasing their output

44
Q

Overt collusion

A

Collusion where firms come into an agreement e.g. cartels

45
Q

Perfect competition

A
46
Q

Perfectly contestable
market

A
47
Q

Predatory pricing

A

Pricing goods and services lower in order to drive competition out of the market

48
Q

Price leadership

A

The dominant firm who sets the price within the market so other smaller firms follow

49
Q

Price wars

A

occurs when two or more rival companies lower the prices of their products or services with the goal of stealing customers from their competitors or gaining market share

50
Q

Private sector

A

the part of a country’s economic system that is run by individuals and companies, rather than a government entity

51
Q

Principal-agent
problem

A

Shareholders having conflict with managers who have different aims within the firm

52
Q

Productive efficiency

A

The point where average cost is at its lowest

53
Q

Profit maximisation

A

The point where a firm see itself make the highest possible profit

54
Q

Profit satisficing

A

Providing just enough profit to shareholders in order to satisfy them

55
Q

Public sector

A

The Government is in charge of providing goods and services within this sector

56
Q

Regulatory capture

A

Regulatory capture is a form of government failure. It happens when a government agency operates in favour of producers rather than consumers

57
Q

Sales maximisation

A

supplying the largest output possible consistent with earning at least normal profits where average revenue = average cost (AR=AC).

57
Q

Static efficiency

A

The level of efficiency at a point in time

58
Q

Sunk cost

A

Costs that cannot be recovered once they have been spent

59
Q

Tacit collusion

A

When firms don’t explicitly work together but act in ways that suggest they are working together.

60
Q

Supernormal profit

A

The profit above normal profit (excess profit)

61
Q

Third degree price
discrimination

A

Charging different prices to different groups of people for the same good/service

62
Q

Total cost

A

The cost to produce a given level of output

63
Q

Total revenue

A

Revenue generated from a sale of a given level output

64
Q

Variable cost

A

Costs that vary with output

65
Q

Vertical integration

A

A merger or takeover of a firm in the same industry but at a different stage of production

66
Q

X-inefficiency

A

When firms produce at a cost above the AC curve

67
Q
A
68
Q
A
69
Q
A

Economics (10 decks)

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