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Economics Revision Hard > Theme 3 definitions > Flashcards

Theme 3 definitions Flashcards

1
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

Where one party has more information than the others, leading to market failure and causing problems for regulators

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3
Q

Average cost/ average total cost

A

The cost of production per unit or total cost of quantity produced

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4
Q

Average revenue

A

The price each unit is sold for

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5
Q

Bilateral monopoly

A

Where there is only one buyer and one seller in the market (e.g presence of trade union and monopsony for employers)

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6
Q

Cartels

A

Formal collusive agreements where firms agree to mutually set prices

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7
Q

Collusion

A

Occurs when firms agree to work together to set a fixed price or quantity they produce

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8
Q

Competition policy

A

Government action to increase competition in markets

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9
Q

Competitive tendering

A

When the government contracts out the provision of a good or service and invites firms to bid on contracts

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10
Q

Conglomerate integration

A

The integration of firms with no common connection

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11
Q

Constant returns to scale

A

Output increases by the same proportion that the input increases by (EOS diagram)

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12
Q

Contestable market

A

When there is the constant threat of new entrants into the market, forcing firms to be efficient

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13
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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14
Q

Demergers

A

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

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15
Q

Deregulation

A

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

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16
Q

Derived demand

A

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

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17
Q

Diminishing marginal productivity

A

if a variable factor is increased when another factor is fixed, there will come a point where each extra unit of the variable factor will produce less output than the previous unit; after a certain point marginal output fall
e.g land and labour

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18
Q

Diseconomies of scale

A

The disadvantage that arises in larger businesses that reduce efficiency and cause average cost to rise (high output, high average cost)

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19
Q

Divorce of ownership from control

A

Firms are owned by shareholders, who have little say in the day to day running of the business, and controlled by mangers; this lead to the principle-agent problem.

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20
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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21
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
(high output, low AC)

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22
Q

External EOS

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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23
Q

Fixed cost

A

Cost that does not change with output

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24
Q

For-profit business

A

A business whose main aim is to make money

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25
Q

Game theory

A

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

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26
Q

Geographical mobility of labour

A

The ease and speed at which labour can move from one location to another

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27
Q

Horizontal integration

A

The merger of firms in the same industry at the same stage of production

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28
Q

Increasing return to scale

A

An increase input by a certain proportion will lead to an even greater in increase of output

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29
Q

Interdependent

A

The actions of one firm directly affects another firm

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30
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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31
Q

Limit pricing

A

When firms set prices low in order to prevent new entrants; used in contestable markets

32
Q

Loss

A

When revenue does not cover the cost

33
Q

Marginal cost

A

The additional cost of producing one extra unit of good

34
Q

Marginal revenue

A

The additional revenue gained by selling one extra unit of good

35
Q

Maximum wage

A

A wage ceiling placed below equilibrium which people cannot earn above

36
Q

Minimum efficient scale

A

The lowest level of output necessary to fully exploit EOS

37
Q

Minimum wage

A

A wage floor set above equilibrium which people cannot earn below

38
Q

Monopolistic competition

A

Where there are a large number of buyers and sellers who are relatively small and act independently, selling non-homogenous goods

39
Q

Monopoly

A

A single dominant seller in the market

40
Q

Monopsony

A

A single dominant buyer in the market

41
Q

N-firm concentration ratio

A

The percentage of market share held by the ‘n’ biggest firms

42
Q

Nationalisation

A

The transfer of assets from the private to public sector

43
Q

Natural monopoly

A

Where EOS are so large that not even a single producer could fully exploit them; it is more efficient for there to be a monopoly than many sellers

44
Q

Non-collusive oligopoly

A

When firms in an oligopoly compete against each other rather than make agreements to reduce competition

45
Q

Normal profit

A

The minimum reward required to keep businesses running, it covers the cost of factor of production and opportunity cost (found at AR=AC) occurs mostly in long run when markets have low barriers of entry and exit

46
Q

Non-price competition

A

When factors other than price are used like customer service or quality; they aim to increase loyalty to their brand which makes demand more inelastic

47
Q

Not-for-profit businesses

A

Firms that aim to maximise social welfare

48
Q

Occupational mobility of labour

A

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

49
Q

Oligopoly

A

Where a few firms dominate the market and have majority of market share; they act interdependently

50
Q

Organic growth

A

Where firms grow by increasing their output

51
Q

Overt collusion

A

Collusion where firms come to formal agreement like cartels

52
Q

Perfect competition

A

A market with many buyers and sellers selling homogenous goods with perfect information and no/low barriers to entry

53
Q

Perfectly contestable market

A

A market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally

54
Q

Predatory pricing

A

When a large. established firm is threatened by new entrants so set such low prices that others firms make losses and are driven out of the market (anti-competitive behaviour which is illegal)

55
Q

Price leadership

A

Where one firm sets prices and other firms tend to follow this firm as they are fearful of engaging in a price war

56
Q

Price wars

A

Where firms continuously drive prices down to the point of frequently making losses and firms are forced to leave the market

57
Q

Principal agent problem

A

Where the agent makes decisions on behalf of the principal; the agent should maximise the benefits of the principals but have the temptation to maximise their own benefits

58
Q

Private sector

A

The part of the economy that is owned and run by individuals or groups of individuals

59
Q

Privitisation

A

The transfer of assets from the public sector to private sector

60
Q

Productive efficiency

A

When resources are used to give the maximum possible output and lowest possible cost (AC=MC)

61
Q

Profit maximisation

A

Common business objective, where firms produce at a point which derives the greatest profit; output set at MC =MR

62
Q

Profit satisficing

A

When a firm earns just enough profits to keep its share holders happy

63
Q

Public sector

A

The part of the economy that is owned or controlled by local or central government

64
Q

Regulatory capture

A

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

65
Q

Revenue maximisation

A

Output set at MR=0, when firms produce at a point which derives the greatest revenue

66
Q

Sales maximisation

A

Output set at AC=AR, when firms produce at where they can sell as many of their goods without making a loss

67
Q

Static efficiency

A

The level of efficiency at a given point at a given time

68
Q

Sunk cost

A

Cost that cannot be recovered once spent e.g capital and advertisement

69
Q

Supernormal profit

A

The profit above normal profit (TR>TC)

70
Q

Tacit collusion

A

Collusion where there is no formal agreement such as price leadership

71
Q

Third degree price discrimination

A

When monopolists charge different prices to different groups for the same good or service

72
Q

Total cost

A

The the total varibale cost + total fixed cost

73
Q

Total revenue

A

Price * quantity sold

74
Q

variable cost

A

cost that changes with output

75
Q

Vertical integration

A

When a firm merges or takes over another firm in the same industry but different stage of production

76
Q

X-inefficiency

A

When firms produce at a cost above the AC curve

77
Q
A

Economics Revision Hard (17 decks)

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