Theme 3 Definitions

Question 1

What does principle agent problem mean?

Answer 1

When there is conflict in priorities between the owner of an asset and the person who has control of the asset

Question 2

What does labour cost mean?

Answer 2

The expenses a business incurs when employing individuals

Question 3

What does capital costs mean?

Answer 3

The one-time expenses paid for things used in the production of goods and services

Question 4

What does organic growth mean?

Answer 4

Where a business grows from within (natural growth)

Question 5

What does derived demand mean?

Answer 5

Demand that comes from the demand for something else

Question 6

What does marginal product mean?

Answer 6

The change in output as a result of one additional unit of input being added to production

Question 7

What does marginal product of labour?

Answer 7

The additional output produced by hiring one more unit of labour

Question 8

What does marginal revenue?

Answer 8

The additional revenue a business earns by selling one more unit of a product or service

Question 9

What does profit maximization mean?

Answer 9

Marginal cost of employing extra labor equals marginal revenue product of labour (MC = MR)

Question 10

What does demand for labour mean?

Answer 10

The quantity of labour that employers are willing and able to hire at a given wage rate

Question 11

What does monopsonist mean?

Answer 11

A single buyer in a market, holding significant power to influence prices and quantities

Question 12

What does supply of labour mean?

Answer 12

The total number of hours that workers are willing and able to offer for work at a given wage rate

Question 13

What does backwards bending supply curve mean?

Answer 13

After a certain point, an increase in wages leads to a decrease in the quantity of labour

Question 14

What does the income effect mean?

Answer 14

The change in the quantity demanded of a good or service resulting from a change in the consumer’s real income

Question 15

What does the substitution effect mean?

Answer 15

The change in the quantity demanded of a good when its price changes, making it more or less expensive relative to other goods

Question 16

What does elastic labour demand mean?

Answer 16

A small change in wages leads to a larger change in the quantity of labour demanded

Question 17

What does elastic labour supply mean?

Answer 17

A small change in wages leads to a large change in the amount of labour supplied

Question 18

What does inelastic labour demand mean?

Answer 18

A small change in wages leads to a smaller change in the quantity of labour demanded

Question 19

What does inelastic labour supply mean?

Answer 19

The quantity of labour supplied is relatively unresponsive to changes in employment levels

Question 20

What does external growth mean?

Answer 20

A company expansion through acquiring other businesses or forming partnerships

Question 21

What does horizontal growth mean?

Answer 21

Expanding the product or services to new markets

Question 22

What does backwards vertical growth mean?

Answer 22

When the business takes over its supplier

Question 23

What does forwards vertical growth mean?

Answer 23

When the business takes over a company at later stage of the production process

Question 24

What does diversification mean?

Answer 24

Integration with a totally unrelated industry

Question 25

What does equilibrium wage rate mean?

Answer 25

When wage equals the quantity of labour

Question 26

What does demergers mean?

Answer 26

The separation of a large company into two or more smaller firms

Question 27

What does synergy mean?

Answer 27

When everyone is much better off co-operating as the big firm

Question 28

What does monopsony mean?

Answer 28

When a firm has market power in employing factors of production (one buyer and many sellers)

Question 29

What does trade union mean?

Answer 29

An organized association of workers in a trade or a profession, formed to protect and further their rights and interests

Question 30

What does markets structure mean?

Answer 30

How businesses behave under different market conditions

Question 31

What does concentration ratio mean?

Answer 31

The percentage of market share taken up by the largest firms

Question 32

What does normal profit mean?

Answer 32

The minimum profit required to keep factors of production in their current use in the long term (including the costs)

Question 33

What does supernormal profit mean?

Answer 33

Profit achieved in excess of normal profit

Question 34

What does perfect competition mean?

Answer 34

A theoretical market structure where many small firms sell identical products, and no firms has control over market prices

Question 35

What does geographical immobility mean?

Answer 35

How easy it is for workers to move between different regions and seek new work

Question 36

What does occupational immobility mean?

Answer 36

How easy it is for workers to move from one occupation to another

Question 37

What does revenue maximize mean?

Answer 37

To get as many cash sales as possible

Question 38

What does sales maximize mean?

Answer 38

To get as many physical sales as possible

Question 39

What does profit maximize mean?

Answer 39

To get as much profit possible

Question 40

What does fixed costs mean?

Answer 40

An expense that remains constant regardless of the level of production or sales

Question 41

What does variable costs mean?

Answer 41

An expense that changes with the quantity of goods or services produced or sold

Question 42

What does revenue mean?

Answer 42

Money firms receive from selling its products

Question 43

What does marginal revenue mean?

Answer 43

The additional revenue from selling the next one

Question 44

What does loss minimisation mean?

Answer 44

Company's short-run economic loss is less than its entire fixed cost

Question 45

What does pure monopoly mean?

Answer 45

Where only one producer exists in the industry and dominates the market

Question 46

What does monopoly power mean?

Answer 46

Where market share exceeds 25%

Question 47

What does productive efficiency mean?

Answer 47

When the equilibrium output is supplied at minimum average costs (bottom of the AC curve)

Question 48

What does allocative efficiency mean?

Answer 48

No one can be better off without making some other agent worse off

Question 49

What does dynamic efficiency mean?

Answer 49

Continuously innovates so makes competitive markets more efficient

Question 50

What does x efficiency mean?

Answer 50

A firm produces the maximum possible output from its inputs given the current technology and organizational structure

Question 51

What does x inefficiency mean?

Answer 51

A firm fails to produce the maximum possible output with the resources it has available, meaning it is not operating at its most efficient level

Question 52

What does price discrimination mean?

Answer 52

The practice of charging different prices for the same good or service

Question 53

What does first degree price discrimination mean?

Answer 53

Charging consumers maximum price that they are willing to pay

Question 54

What does second degree price discrimination mean?

Answer 54

Charging different prices depending upon quantity consumed

Question 55

What does third degree price discrimination mean?

Answer 55

Charging different prices to different types of people

Question 56

What does monopolistic competition mean?

Answer 56

A market structure characterized by numerous firms offering similar but not identical products with low barriers to entry

Question 57

What does human capital difference mean?

Answer 57

The variations in knowledge, skills, and experience among individual

Question 58

What does job discrimination mean?

Answer 58

A group of workers are denied access, or have limited access to jobs or higher paid jobs

Question 59

What does economies to scale mean?

Answer 59

When average costs start to fall

Question 60

What does returns to scale mean?

Answer 60

Average costs are falling

Question 61

What does minimum efficient scale mean?

Answer 61

Lowest point of the average cost curve

Question 62

What does diseconomies to scale mean?

Answer 62

When average costs start to rise

Question 63

What does external economies to scale mean?

Answer 63

When the entire industry sees its average cost falling

Question 64

What does internal economies to scale mean?

Answer 64

The cost advantages a company gains by growing internally

Question 65

What does technical efficiency mean?

Answer 65

When a firm is producing the maximum output from the minimum inputs such as labour, capital and technology