A* Terms Flashcards
Coase Theorem
Bargaining between individuals or groups related to property rights will lead to an optimal and efficient outcome, no matter what that outcome is
Corporate Social Responsibility (CSR)
Firms may reduce negative externalities or increase positive ones to maintain good public image
Bounded Rationality
Individuals aim to make rational decisions but are limited by cognitive ability and time
Bounded Self-Control
Individuals sometimes lack self-discipline
Principal-Agent Problem
When decision-makers don’t perfectly align with the goals of those they represent (e.g . 2012 – Apple shareholders revolted against management, wanting them to pay some of its cash reserves in the form of dividends, Apple ended up paying 72% of their operating cash flow, compared to only 6% for Google)
Giffen Goods
Inferior goods where a price rise lead to more being demanded (e.g. Staple foods like rice and bread)
Veblen Goods
Goods where higher prices makes them more desirable due to status (e.g. luxury watches and designer handbags)
Pigouvian Tax
Tax imposed to correct for a negative externality, equal to the external cost at the socially optimal output level (e.g. Carbon emissions tax or tax on tobacco)
Rational Ignorance
People choose to remain uninformed when the cost of acquiring information is greater than the potential benefit (e.g. Workers do not want to get advanced training or a certificate, even if it may help them in the longer run)
Backward Bending Labour Supply Curve
At high wages, individuals may choose to work less as the income effect (more money for leisure) outweighs the substitution effect (higher reward for working)
Loss Aversion
People feel the pain of losses more strongly than the pleasure of equivalent gains (explains consumer irrationality)
Economies of Scope
Cost advantages that result when firms provide a variety of products (e.g. Airlines – Passenger airlines frequently transport freight cargo underneath the plane)
Cournot Competition
Usually in Oligopolies where firms offer an identical product, they compete on the amount of output they produce, independently and at the same time.
Hotelling’s Law
In competitive markets, firms may choose to locate themselves together with other competitors in order to minimise differentiation (e.g. Many coffee shops very close together in Bromley Shopping centre)
Kaldor-Hicks Efficiency
A decision can be more efficient as long as there is a net gain to society – losses to be compensated from the net gain (e.g. building an airport may have costs to locals and environment but benefits from airlines and passengers would outweigh it)
Cost Disease
Industries that have low productivity growth (education or healthcare), costs tend to rise faster than in other sectors as wages must rise to compete for workers
