Economics key terms > Theme 3 > Flashcards

Theme 3 Flashcards

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1
Q

Allocative efficiency

A

Where resources are distributed in a way that meets consumer preferences

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2
Q

AC/ ATC

A

The COP per unit (Total costs/ quantity produced)

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3
Q

Average revenue

A

The price each unit is sold for (TR/Output)

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4
Q

Bilateral monopoly

A

Only one buyer and seller in the market e.g A trade union (sole seller of labor) negotiating wages with a large factory in a small town (sole employer)

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5
Q

Cartels

A

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

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6
Q

collusion

A

when firms agree to work together (setting a price/ fixing the qty. they produce)

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7
Q

Competition policy

A

Govt. action to increase competition in markets e.g (For example, the CMA blocked the merger between Sainsbury’s and Asda in 2019.)

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8
Q

Competitive tendering

A

when the govt. contracts out the provision of a g/s and invites firms to bid for the contract

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9
Q

conglomerate integration

A

the merger of firms with no common connection (e.g to diversify)

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10
Q

constant returns to scale

A

output increases by the same prop. that inputs increase by

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11
Q

contestable market

A

when there is a threat of new entrants into the market, forcing incumbent firms to be efficient

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12
Q

decreasing returns to scale

A

an increase in inputs by a certain prop. will lead to output increasing by a smaller proportion

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13
Q

demergers

A

a single business is broken into 2 or more businesses to operate on their own, to be sold or to be dissolved

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14
Q

deregulation

A

the 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 for a related good

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16
Q

Diminishing marginal productivity

A

if a variable factor is increased when another factor is fixed, eventually 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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17
Q

Dis EOS

A

disadvantages of a large business that reduce efficiency and cause avg. costs to rise

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18
Q

Divorce of ownership from control

A

Firms are owned by shareholders who have little to say in the day to day running of the business (controlled by managers) leading to the principal-agent problem

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19
Q

dynamic efficiency

A

efficiency in the LR; concerned with new tech. and increases in productivity which causes efficiency to increase over a period of time

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20
Q

EOS

A

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

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21
Q

external EOS

A

an adv which arises with the growth of the industry itself from which the firm operates

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22
Q

fixed costs

A

costs that do not vary with output

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23
Q

for-profit business

A

a business whose main aim is to max. profit/make money

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24
Q

game theory

A

used to predict the outcome of a decision of one firm when it has incomplete info. about the other firm

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25
geographical labour mobility
the ease at which labour can move from one area to another
26
horizontal integration
the merger of firms in the same industry at the same stage of production
27
increasing returns to scale
an increase inputs by a certain proportion leads to an increase in output by a larger proportion
28
interdependent
when the actions of one firm directly affects the others
29
internal EOS
and advantage that a firm achieves because of growth of the firm itself
30
limit pricing
when firms set low prices in order to prevent new entrants (used in contestable markets)
31
Loss
when revenue does not cover costs
32
marginal cost
the additional cost of producing one extra unit of good
33
marginal revenue
additional revenue gained when selling one extra unit of good
34
Maximum wage
a ceiling wage which people cannot earn above
35
MES (Min. efficient scale)
the lowest level of output necessary to fully exploit EOS
36
Min. wage
a floor wage which people cannot earn below
37
Monopolistic competition
where there are a large number of buyers and sellers who are relatively small and act independently, selling non-homogenous goods
38
Monopoly
a single seller in the market
39
monopsony
a single buyer in the market
40
n-firm concentration ratio
the % of market share of the larget 'n' firms
41
natural monopoly
where EOS is 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
42
non-collusive oligopoly
when firms in an oligopoly compete against each other rather than making agreements to reduce competition
43
Non-price competition
when firms compete on factors other than price, e.g customer service or quality; they aim to increase the loyalty to the brand which makes them more demand inelastic
44
normal profit
the minimum reward rquired to keep entrepreneurs supplying their enterprise (the return sufficient to keep the FOP committed to the business); TC=TR
45
not for profit business
where firms are run in order to maximise social welfare and help individuals and groups (profit used to support their aims)
46
occupational mobility of labour
the ease at which labour can move from one type of job to another (transferrable skills?)
47
oligopoly
where a few firms dominate the market and have the majority of market share; they act interdependently
48
overt collusion
collusion where firms do a formal agreement (cartel) eg OPEC
48
organic growth
where firms grow by increasing their output
49
perfect competition
a market with many buyers/ sellers selling homogenous goods with perfect information and freedom of entry/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 a price below rivals AC/AVC so that they make losses and are driven out of the market
52
price leadership
where one dominant firm sets prices and other firms tend to follow this firm as they are fearful of engaging in a price war
53
price wars
where 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
privitisation
transfer of ownership of assets in nationalised industries or other firms to private investors e.g. 1980s UK sales of British Telecom (1984) and British Airways (1987)
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 derive the greatest profit; MC=MR
59
profit satisficing
when a firm earns just enough profit to keep its shareholders satisfied
60
public sector
the part of the economy that is owned/controlled by local or central government
61
regulatory capture
when the regulators become more empathetic and are able to see from the firms' persepctive (removes impartiality and weakens their ability to regulate)
62
revenue max.
When firms produce at a point which derives the greatest revenue; MR=0
63
sales max.
when firms produce at a point wherethey sell as many of their g/s as posssible without making a loss; AR=AC
64
static efficiency
the level of efficiency at one point in time
65
sunk cost
costs that cannot be recovered once they have been spent
66
SNP
thew 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 g/s
69
total cost
the cost to produce a given level of output (TVC +TFC)
70
Total revenue
revenue generated from the sale of a given level of output (Px Qty. sold)
71
VC
costs which 'vary' with output
72
vertical integration
when a firm merges/takes over another firm in the same industry but at a different stage of production
73
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