Business Behaviour & The Labour Market I

Question 1

Define Allocative efficiency

Answer 1

When resources are allocated to the best interests of society, when
there is maximum social welfare and maximum utility; P=MC

Question 2

Define Asymmetric information

Answer 2

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

Question 3

Define a Bilateral monopoly

Answer 3

Where there is only one buyer and one seller in the market

Question 4

Define a Cartel

Answer 4

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

Question 5

Define Collusion

Answer 5

Occurs when firms agree to work together, for example by setting a
price or fixing the quantity they produce

Question 6

Define Competitive tendering

Answer 6

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

Question 7

Define Congolomerate Integration

Answer 7

The merger of firms with no connection

Question 8

Define a Contestable Market

Answer 8

low barriers to entry and exit so that new suppliers can come into a market to provide fresh competition to established businesses

Question 9

Define Decreasing returns to scale

Answer 9

An increase in inputs by a certain proportion will lead to output increasing by a smaller proportion

Question 10

Define Deregulation

Answer 10

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

Question 11

Define Derived Demand

Answer 11

The demand that comes from the demand for something else.
e.g. demand for machinery is derived from the demand for consumer goods that the machinery can make.

Question 12

Define Diminishing Marginal Productivity

Answer 12

using increasing amount of some variable inputs during the production while other inputs are constant will eventually lead to decreasing productivity

Question 13

Define Diseconomies of Scale

Answer 13

When a business expands in the long run the unit cost of production increases

Question 14

Define Divorce of Ownership

Answer 14

entities that own the company (the shareholders) don’t have direct control over the decision-making/day-to-day operations. Which is instead handled by a board of directors or other management teams.

Question 15

Define Economies of Scale

Answer 15

Unit cost of productions decreases as firm/busnisess expands in the long run

Question 16

Define External Economies of Scale

Answer 16

An advantage which arises from the growth of the industry within
which the firm operates, independent of the firm itself

Question 17

Define Geographical mobility of Labour

Answer 17

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

Question 18

Define Horizontal integration

Answer 18

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

Question 19

Define Increasing retuns to scale

Answer 19

An increase in inputs by a certain proportion will lead to an increase in output by a larger proportion

Question 20

Define Limit Pricing

Answer 20

When firms set prices low in order to prevent new entrants

Question 21

Define Monopolistic Competition

Answer 21

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

Question 22

Define N firm-concerntration ratio

Answer 22

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

Question 23

Define a natural monopoly

Answer 23

Where economies of scale are 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

Question 24

Define a Non-profit firm/business

Answer 24

Where firms aim to maximise social welfare and help ndividuals/groups

Question 25

Define Occupational mobility of Labour

Answer 25

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

Question 26

Define Organic Growth

Answer 26

Where firms grow by increasing their output

Question 27

Define Perfect Competition

Answer 27

A market with many buyers and sellers selling homogenous goods with perfect information and freedom of entry and exit

Question 28

Define a Pefectly contestable market

Answer 28

A market with no barriers to entry

Question 29

Define Predatory Pricing

Answer 29

When a firm sets such a low price that other firms make losses and are driven out the
market

Question 30

Define Price Wars

Answer 30

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

Question 31

Define Sunk costs

Answer 31

Costs that cannot be recovered once they’ve been spent

Question 32

Define Tacit collision

Answer 32

Collusion where there is no formal agreement, such as price leadership

Question 33

Define Price leadership

Answer 33

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

Question 34

Define X-inefficiency

Answer 34

When firms produce at a cost above the AC curve