1
Q
what is the short run?
A
at least one input is fixed, limiting growth and supply
2
Q
what is the long run?
A
all factors of production are variable, the scale of production can change
3
Q
what is the law of diminishing return?
A
as more units of a variable input are added to fixed inputs, output will rise then fall
4
Q
what is a price taking firm?
A
a firm has to sell at market price in perfect competition
5
Q
what is a revenue synergie?
A
the ability to sell more products and services or raise prices after a merger
6
Q
what is marginal output, costs or revenue?
A
the change in x following an increase in one unit of output
7
Q
what is the cause of marginal cost?
A
the law of diminishing return
rises with variable costs
8
Q
what is an explicit cost?
A
costs which require payment
9
Q
what is implicit costs?
A
opportunity costs
10
Q
what is the formula for marginal costs?
A
change in total costs / quantity
11
Q
give 4 features of perfect competiton
A
- unlimited buyers and sellers
- homogenous products
- low barrier to entry and exit
- no market power
12
Q
give 5 features of monopolistic competiton
A
- many firms
- differentiated products
- low barriers to entry or exit
- small market power
- price setters
13
Q
give 5 features of an oligopoly market
A
- dominated by a few firms
- identical or differentiated products
- high barriers to entry or exit
- large market power
- price setters
14
Q
A
15
Q
give 4 features of a monopoly
A
- dominated by 1 firm
- unique products
- impossible barriers to entry or exit
- complete market power
16
Q
what is a sunk cost?
A
costs that cant be recovered
17
Q
what is a loss leader?
A
a product sold at a loss to attract customers
18
Q
what is normal profit?
A
opportunity cost is 0
19
Q
what is supernormal profit?
A
opportunity cost is a negative
20
Q
what is subnormal profit?
A
opportunity cost is a positive
21
Q
what is specialisation?
A
the focus by a worker on a limited product range or part of the production process
22
Q
what is returns to scale?
A
the change in ouput when changing a long run f.o.p
23
Q
what is the minimum efficient scale?
A
the lowest level of ouput required to exploit full economies of scale
lowest ac
24
Q
name all 6 internal e.o.s
really fun mums try making pies
A
- risk bearing
- financial
- managerial
- technological
- marketing
- purchase power
25
give 5 features of perfect competition
1. infinite buyers and sellers
2. homogenous goods
3. price takers
4. no barriers to entry and exit
5. perfect information
26
when does profit maximisation occur?
when MC=MR
27
give 3 reasons for profit maximisation
1. reinvestment
2. dividends for shareholders
3. reward for entrepreneurship
28
give 3 reasons why profit maximisation may not occur
1. lack of knowledge of MC and MR
2. greater scrutiny
3. key stakeholders harmed
29
what is profit satisficing?
sacraficing profit to satisfy key stakeholders
30
when does revenue maximisation occur?
when marginal revenue = 0
31
give 3 reasons for revenue maximisation
1. economies of scale
2. predatory pricing
3. 'principal agent problem'
32
what is the principal agent problem?
a split between ownership and control
| manager may use r max as leverage before going back to p max over owners
33
when does sales maximisation occur?
when average costs = average revenue
34
give 4 reasons for sales maximisation
1. economies of scale
2. limit pricing ( price at break even deincentivises new firms)
3. prinicple agent problem
4. flood the market
35
what are the 7 possible objectives of firms
1. profit maximisation
2. profit satisficing
3. revenue maximisation
4. sales maximisation
5. survival
6. public sectors equilibirum
7. corporate social responsibility
36
what is corporate social responsibility?
balancing economic goals with ethical and social impacts
37
what is a barrier to entry?
any obstacle that prevents a new firm entering a market
38
what are the 4 different types of barriers to entry?
| LTSB
1. Legal e.g patents
2. Technical e.g start up costs
3. Strategic e.g pred pricing
4. Brand loyalty
39
what is a barrier to exit?
any obstacle that prevents a firm from leaving a market
| e.g contractual, regulations and sunk costs
40
what is economic efficiency?
when all 4 efficiencys are met
41
what is allocative efficiency?
where resources follow consumer demand, maximising society surplus
| MC=AR. D=S
42
what is productive efficiency?
operating at the lowest point of the AC curve to exploit full e.o.s
43
what is x-efficiency?
operating on the ac curve to minimise waste (excess costs)
| caused through monopoly laziness or public sector firms
44
what is dynamic efficiency?
the reinvestment of long run supernormal profit
| occurs over time
45
what is static efficiency?
the efficiencys at a specific point in time (A, P, X)
46
what is monopolistic competition?
a realistic version of perfect competition
47
give 5 features of monopolistic competition
1. many firms
2. product differentiation
3. price setters
4. easy to enter or exit
5. imperfect competition
48
what is the principle of minimal differentiation?
entering a market with similar products makes it easier for consumers to switch
49
why does SR SNP often result in LR NP?
| perfect comp
as firms are incentivised to join the market, driving price down
50
what does LR perfect competition presume?
all firms operate in profit maximisation
51
why doesnt subnormal profit last in the long run?
| perfect comp
as firms are incentivised to leave, driving up the price as supply decreases
52
what is the evaluation of LR perfect competition?
1. p=mc= allocatively efficient
2. lowest point on ac curve = productively efficient
3. operates on ac curve= x efficiency
4. No SNP so no dynamic efficiency
| statically efficient
53
give 2 reasons why firms may continue in subnormal profit
1. customer loyalty - reward
2. large workforce - morals
54
what is the shutdown condition?
AR=AVC then maybe, AR < AVC definitely
55
what is the breakeven condition?
AR=AC
56
what will happen to remaining firms in a sub normal profit market?
companies will go back to normal profit as firms leave
| less supply drives price
57
what is a monopoly?
a market where a singular firm has over 25% market share
58
give 5 features of a monopoly
1. one dominant firm (pure monopoly or monopoly power)
2. differentiated products
3. price setters
4. high barriers to entry/exit
5. imperfect information
| LR SNP
59
what is the evaluation for monopoly markets?
1. allocatively ineffeicient AR doesnt equal MC
2. productively ineffeicient, not on lowest ac
3. x inefficient, not on ac curve
4. dynamically efficent due to lr snp
| statically inefficient
60
what is deadweight welfare loss?
the reduction in the total level of society surplus
| caused by monopolys
61
what is society surplus?
the total benefits gained in a market ( P+C surplus)
62
what market maximises society surplus?
a competitive one at allocative efficiency
63
what is price discrimination?
when firms charge different prices to different consumers for the same g/s without a shift in c.o.p
64
what 3 conditions are needed for price discrimination?
1. price setting power
2. information on elasticitys
3. difficult to resell
65
what is 1st degree price discrimination?
charging based off of the max price a consumer is willing to pay for a g/s
66
what does 1st degree price discrimination cause?
the change of consumer surplus into monopoly profit
67
what is 2nd degree price discrimination?
charging based off quantity bought or available
| prices lower with volume or excess capacity, and vice versa
68
what is 3rd degree price discrimination?
charging different prices based off of market segments elasticity
69
give 3 cons of price discrimination
1. allocative inefficiency
2. widening inequality
3. anti-competitive pricing may result in greater monopoly power
70
give 4 pros of price discrimination
1. dynamic efficiency
2. e.o.s
3. consumer surplus sometimes rises
4. cross subsidisation (may fund loss leaders)
| cons outweigh pros
71
what is a contestable market?
one with strong chances of new firms entering
72
what does derived demand for labour mean?
the demand for labour is based off of the demand for the g/s they produce
73
give 3 examples which would shift the labour demand curve
1. change in demand for a good
2. labour productivity changing
3. the change in the price of a substitute good or complimentary good
74
what is marginal productivity product?
| MPP
the extra output each extra worker produces
75
what is the formula for MPP?
change in total output / change in labour
76
what is marginal revenue product?
| MRP
the extra revenue employed by hiring an extra worker
| only hired if wage is less than the MR
77
what is the formula for MRP?
change in output x price of output
78
why does MRP (demand curve for labour) slope down?
due to the law of diminishing returns
79
what does the elasticity of labour demand measure?
the change in employees demanded following a change in wages
80
give 5 determinants of the labour elasticity of demand
1. PED for the product
2. substitutablity (machines)
3. proportion of labour cost to total cost
4. time period
5. skill of workers
81
what does the supply of workers refer to?
the number of workers willing and able to work at a given wage in a given period
82
why does the supply of labour slope upwards?
as people are more incentivised to work at higher wages
83
give 5 factors which affect labour supply
1. monetary factors
2. working conditions
3. population
4. number of trained workers
5. job flexibility
84
what does the elasticity of labour supply show?
the responsivness of labour supply following a change in market wages
| more elastic with low skilled jobs
85
why are highly skilled jobs inelastic for labour supply?
as they require long training, meaning workers cant just join if wages rise
86
give 5 factors which impact the elasticity of labour supply
1. time period
2. occupational mobility (speed of job change)
3. geographical mobility
4. availaibility of substitutes
5. non-monetary factors (wages may fall but remain if they enjoy work)
87
what is the national minimum wage?
| NMW
a legally set lowest wage that can be paid to workers
| has to be set above market price
88
give 5 effects of a national minimum wage
1. fall in employment rate
2. positive externalities e.g standard of living
3. increased tax revenue
4. increased prices due to c.o.p
5. greater incentive to work
89
give 2 advantages of the national minimum wage
1. reduces poverty
2. increases standard of living
90
give 2 disadvantages of a national minimum wage
1. unemployment if a firm cannot afford it
2. increased prices of goods
91
what is wage discrimination?
difference in wages between workers with comparable skills in the same job
92
what 3 conditions are neccessary for wage discrimination?
1. bias
2. info asymmetry
3. regulation (lack of)
93
give 4 external types of e.o.s
1. geographic cluster - producers move closer to businesses
2. improved transport links - wider labour supply
3. skilled labour - requires less labour
4. favourable legislation - subsidies
94
give 4 types of disconomies of scale
1. management - when managers work in self interest e.g power over ac
2. communication
3. geographical - too many locations slows decision making
4. cultural - cultural barriers as a mnc
95
how does the sr diseconomies of scale increase long run e.o.s?
as firms will increase their productive capacity
96
what is increasing returns to scale?
increasing inputs leads to a greater than proportional increase in output
| economies of scale
97
what is decreasing returns to scale?
when increasing output causes a lower than proportional rise in output
| diseconomies of scale
98
give 3 examples of non price competition strategies
1. location
2. branding
3. customer service
99
why is the price curve flat in perfect competition?
as the market sets the price
100
what is a collusive oligopoly market?
one where firms co-operate to fix and restrict output
| can result in snp
101
what is a non collusive oligopoly market?
one where firms compete to maintain or increase market share
| e.g price wars
102
what are the 2 types of collusion?
1. overt
2. tacit
103
what is overt collusion?
firms formally agree to limit competition and raise prices
| can result in a cartel
104
what is a cartel?
where a group of firms collude to act like a monopoly
| illegal
105
give 3 strategies of overt collusion
1. price fixing
2. output quotas
3. agreements to block new firms
106
give 3 consequences of overt collusion
1. higher prices
2. less output
3. less innovation
107
what is tacit collusion?
firms following the footsteps of one another
| e.g price leadership
## Footnote
hard to prove collusion
108
what is price leadership?
where one firm sets the price and the rest of the firms follow
109
give 3 differences between collusion and co-operation
1. collusion is illegal
2. collusion acts as monopolies
3. collusion reduces consumer surplus
| co-operation does the opposite of them all
110
what does the kinked demand curve show?
demand is elastic until a certain point, afterwards lowering prices reduces revenue
111
give 3 pros and cons of oligopolies
1. lower prices for consumers through e.o.s
2. snp allows for innovation
3. improved quality in non-price comp
1. higher barriers restrict innovation
2. control over output and prices
3. potential for illegal collusion
112
give 3 short term benefits of competition
1. competition reduces prices to obtain market share
2. more choice
3. non-price strategies increase customer satisfaction
113
give 3 long term benefits of competition
1. allocatively efficient firms survive - lower prices
2. technology innovation
3. increased quality as SNP allows for investment in R&D
114
what is hit and run competition?
when firms briefly join a market for SR SNP, then leave
115
where does a monopsony operate at?
MC=MRP
116
what is a sign of whether monopsonys have high power?
if there is a large gap between wages and MRP
117
what is a nominal wage?
the numerical value of a wage
118
what is a real wage?
a nominal wage adjusted for inflation, showing purchasing power
119
what are wage differentials?
the difference in pay between groups of workers in a labour market
120
what are property rights?
legal rights to own a property - leads to improved market failiure as producers internalise externalities
121
what is regulatory capture?
govt failure where regulatory agencies acting in commerical interest over public interest
| agencies grow too close in relation to commerical firms
122
what is the Marshall Lerner condition?
the theory that depretiation will only correct the current account if the ped of M + ped of X is greater than 1
| inelastic demand will do little to correct the acount deficit
123
what does the J curve show?
in the short run, depreciation will worsen the current account as import costs increase faster than export rises in volume
| improved in the LR
124
give 3 causes of market failure
1. asymmetric information
2. government failure
3. negative externalities
a level economics
flashcards
Decks in class (13)
# Cards
-
micro year 189
-
macro year 180
-
micro year 2124
-
economic methodology12
-
Consumer behaviour25
-
market structures micro2
-
macro fiscal and ssp39
-
macro financial markets78
-
macro the international economy75
-
micro labour market26
-
micro income and wealth21
-
macro real world examples10
-
micro real world examples13
