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Economics > Theme 3 > Flashcards

Theme 3 Flashcards

(74 cards)

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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
Horizontal integration
A merger between firms within the same industry and at the same stage of the production process
23
Game theory
Used to predict the outcome
24
Increasing returns to scale
A increase in the proportion of inputs by a certain proportion leads to a larger increase in the proportion of outputs
25
Interdependent
Actions of one firm directly affects another firm
26
Internal economies of scale
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
27
Limit pricing
Setting the price low so that new entrants are prevented from entering the market (used in contestable markets)
28
Loss
When revenue does not cover costs
29
Marginal revenue
The additional revenue gained by selling one extra unit of a good
29
Marginal cost
The additional cost of producing one extra unit of a good
30
Maximum wage
The ceiling wage people cannot earn above
31
Minimum efficient scale
Lowest level of output necessary to fully exploit economics of scale
32
Minimum wage
The floor wage where no one can earn below
33
Monopolistic competition
Large number of buyers and sellers that are relatively small selling non-homogenous goods
34
Monopoly
A single seller in the market
35
N-firm concentration ratio
a common measure of market structure and shows the combined market share of the n largest firms in the market
36
Nationalisation
the process of taking privately-controlled companies, industries, or assets and putting them under the control of the government
37
Non-collusive oligopoly
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
Non-price competition
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
Normal profit
Where total costs are equal to total revenue (break-even point)
40
Not-for-profit business
Where firms are run to maximise social welfare and help individuals and groups (any profit made is used to support their aims)
41
Occupational mobility of labour
refers to the ease with which a worker can leave one job for another in a different field
42
Oligopoly
Small number of dominant firms who have the majority of the market share, they act interdependently.
43
Organic growth
When firms grow by increasing their output
44
Overt collusion
Collusion where firms come into an agreement e.g. cartels
45
Perfect competition
46
Perfectly contestable market
47
Predatory pricing
Pricing goods and services lower in order to drive competition out of the market
48
Price leadership
The dominant firm who sets the price within the market so other smaller firms follow
49
Price wars
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
Private sector
the part of a country's economic system that is run by individuals and companies, rather than a government entity
51
Principal-agent problem
Shareholders having conflict with managers who have different aims within the firm
52
Productive efficiency
The point where average cost is at its lowest
53
Profit maximisation
The point where a firm see itself make the highest possible profit
54
Profit satisficing
Providing just enough profit to shareholders in order to satisfy them
55
Public sector
The Government is in charge of providing goods and services within this sector
56
Regulatory capture
Regulatory capture is a form of government failure. It happens when a government agency operates in favour of producers rather than consumers
57
Sales maximisation
supplying the largest output possible consistent with earning at least normal profits where average revenue = average cost (AR=AC).
57
Static efficiency
The level of efficiency at a point in time
58
Sunk cost
Costs that cannot be recovered once they have been spent
59
Tacit collusion
When firms don't explicitly work together but act in ways that suggest they are working together.
60
Supernormal profit
The profit above normal profit (excess profit)
61
Third degree price discrimination
Charging different prices to different groups of people for the same good/service
62
Total cost
The cost to produce a given level of output
63
Total revenue
Revenue generated from a sale of a given level output
64
Variable cost
Costs that vary with output
65
Vertical integration
A merger or takeover of a firm in the same industry but at a different stage of production
66
X-inefficiency
When firms produce at a cost above the AC curve
67
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Economics (10 decks)

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