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Edexcel A Level Economics > Theme 3 > Flashcards

Theme 3 Flashcards

(73 cards)

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1
Q

Allocative efficiency

A

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

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2
Q

Average cost/average total cost

AC/ATC

A

The cost of production per unit

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3
Q

Average revenue

A

The price each unit is sold for

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4
Q

Cartels

A

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

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5
Q

Collusion

A

Occurs when firms agree to work
together, for example by setting a price
or fixing the quantity they produce

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6
Q

Competition policy

A

Government action to increase

competition in markets

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7
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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8
Q

Conglomerate integration

A

The merger of firms with no common

connection

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9
Q

Constant returns to scale

A

Output increases by the same proportion

that the inputs increase by

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10
Q

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

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

Demergers

A

A single business is broken into two or
more businesses to operate on their
own, to be sold or to be dissolved

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13
Q

Deregulation

A

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

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14
Q

Derived demand

A

The demand for one good is linked to the

demand for a related good

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15
Q

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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16
Q

Diseconomies of scale

A

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

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17
Q

Firms are owned by shareholders, who
have little say in the day to day running of
the business, and controlled by managers;
this leads to the principal-agent problem

A

Divorce of ownership from control

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18
Q

Dynamic efficiency

A

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

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19
Q

Economies of scale

A

The advantages of large scale
production that enable a large business
to produce at a lower average cost than
a smaller business

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20
Q

External economies of scale

A

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

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21
Q

Fixed cost

A

Costs which do not vary with output

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22
Q

Game theory

A

Used to predict the outcome of a
decision made by one firm, which has
incomplete information about the other
firm

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23
Q

Geographical mobility of labour

A

The ease and speed at which labour can

move from one area to another

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24
Q

Horizontal integration

A

The merger of firms in the same industry

at the same stage of production

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25
Increasing returns to scale
An increase in inputs by a certain proportion will lead to an increase in output by a larger proportion
26
Interdependent
The actions of one firm directly affects | another firm
27
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
28
Limit pricing
When firms set prices low in order to prevent new entrants; used in contestable markets
29
Loss
When revenue does not cover costs
30
Marginal cost
The additional cost of producing one | extra unit of good
31
Marginal revenue
The additional revenue gained by selling | one extra unit of good
32
Maximum wage
A ceiling wage which people cannot earn above
33
Minimum efficient scale
The lowest level of output necessary to | fully exploit economies of scale
34
Minimum wage
A floor wage which people cannot earn | below
35
Monopolistic competition
Where there are a large number of buyers and sellers who are relatively small and act independently, selling non-homogenous goods
36
Monopoly
A single seller in the market
37
Monopsony
A single buyer in the market
38
N-firm concentration ratio
The percentage of market share held by | the ‘n’ biggest firms
39
Nationalisation
When a private sector company or industry is brought under state control, to be owned and managed by the government
40
Natural monopoly
Where economies of scale are so large that not even a single producer is able to fully exploit them; it is more efficient for there to be a monopoly than many sellers
41
Non-collusive oligopoly
When firms in an oligopoly compete against each other, rather than making agreements to reduce competition
42
Non-price competition
``` When firms compete on factors other than price, for example customer service or quality; they aim to increase the loyalty to the brand which makes demand more inelastic ```
43
Normal Profit
The minimum reward required to keep entrepreneurs supplying their enterprise, the return sufficient to keep the factors of production committed to the business; TC=TR
44
Not-for-profit business
Where firms are run in order to maximise social welfare and help individuals and groups; any profit they do make is used to support their aims
45
Occupational mobility of labour
The ease and speed at which labour can | move from one type of job to another
46
Oligopoly
Where a few firms dominate the market and have the majority of market share, they act interdependently
47
Organic growth
When firms grow by increasing their | output
48
Overt collusion
Collusion where firms come to a formal | agreement, for example a cartel
49
Perfect competition
A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit
50
Perfectly contestable market
A market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally
51
Predatory pricing
When a large, established firm is threatened by new entrants so sets such a low price that other firms make losses and are driven out the market
52
Price leadership
Where one firm sets prices and other firms tend to follow this firm as they are fearful of engaging in a price war
53
Price wars
When firms continuously drive prices down to the point where they are frequently making losses and firms are forced to leave
54
Principal-agent problem
Where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits
55
Private sector
The part of the economy that is owned and run by individuals or groups of individuals
56
Privatisation
The sale of government equity in nationalised industries or other firms to private investors
57
Productive efficiency
When resources are used to give the maximum possible output at the lowest possible cost; MC=AC
58
Profit maximisation
When firms produce at a point which | derives the greatest profit; MC=MR
59
Profit satisficing
When a firm earn just enough profit to | keep its shareholders happy
60
Public sector
The part of the economy that is owned and controlled by local or central government
61
Regulatory capture
When regulators become more empathetic and are able to ‘see things from the firm’s perspective’, which removes impartiality and weakens their ability to regulate
62
Revenue maximisation
When firms produce at a point which | derives the greatest revenue; MR=0
63
Sales maximisation
When firms produce at a point where they sell as many of their goods and services as possible without making a loss; AR=AC
64
Static efficiency
The level of efficiency at one point in | time
65
Sunk costs
Costs that can’t be recovered once they | have been spent
66
Supernormal profit
The profit above normal profit, TR>TC
67
Tacit collusion
Collusion where there is no formal | agreement, such as price leadership
68
Third degree price discrimination
When monopolists charge different prices to different groups for the same good or service
69
Total cost (TC)
The cost to produce a given level of | output
70
Total revenue (TR)
Revenue generated from the sale of a | given level of output
71
Variable costs
Costs which change with output
72
Vertical integration
When a firm merges or takes over another firm in the same industry, but at a different stage of production
73
X-inefficiency
When firms produce at a cost above the | AC curve

Edexcel A Level Economics (5 decks)

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