Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics A2 > C7 - Definitions > Flashcards

C7 - Definitions Flashcards

1
Q

Utility

A

The satisfaction received from consumption of goods or services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Total utility

A

Total satisfaction received from consumption.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Marginal utility

A

Utility derived from the consumption of one more unit of good or service.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Positive marginal utility

A

When the consumption of an additional item increases the total utility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Negative marginal utility

A

When the consumption of an additional item decreases the total utility.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Diminishing marginal utility

A

Fall in marginal utility as consumption increase.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Equimarginal principle

A

Consumer maximise their utility where their marginal valuation for each product consumed is the same.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Budget line

A

The combinations of 2 products obtainable with given income and prices.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Indifference curve

A

Shows the different combinations of two goods that give a consumer equal satisfaction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Income effect

A

The income effect is the change in a good’s consumption brought by a change in real purchasing power.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Substitution effect

A

The substitution effect is the change in a good’s consumption associated with a change in the relative price of the good, with the level of utility constant.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Behavioural economics

A

A branch of economics that builds on the psychology of human behaviour in decision making.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Marginal rate of substitution

A

The rate at which a consumer is willing to give up amount of other good to obtain one extra unit of the good in question without affecting total satisfaction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Consumer optimal point of consumption

A

Where the budget line touches or is at tangent to the indifference curve.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Giffen good

A

Demand falls as the price of the good falls and demand increases as the price increases.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Economic efficiency

A

Scarce resources are used in the most efficient way to produce maximum output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Productive efficiency

A

Firm is producing using least possible resources and at the lowest possible cost. (lowest point on ATC curve)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Allocative efficiency

A

Firms are producing goods and services most wanted by consumers. (P = MC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Pareto optimality

A

Not possible to make someone better off without making someone else worse off. (Resources are allocated in the most efficient way)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Dynamic efficiency

A

A form of productive efficiency that benefits a firm over time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Market failure

A

A market failure is a situation where free markets fail to allocate resources efficiently.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Private costs

A

Costs that incrred by an individual who produces a good or service.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

External costs

A

Those costs incurred and paid for by third parties not involved in the action.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Social costs

A

Total costs of a particular action.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Private benefits

A

Monetary gain or other forms of benefits that an individual or producer receives from consuming or producing goods or services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

External benefits

A

Benefits that are received by third parties that are not involved in the transaction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Social benefits

A

Total benefits arising from a particular action.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Externalities

A

Actions of producers or consumer give rise to side effects on third parties who are not involved in the actions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Negative externality

A

Production or consumption of a good or service that results a cost to third party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

Negative production externaltiies

A

Negative externality that arise from production activity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Negative consumption externalities

A

Negative externality that arise from consumption of a good or service.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Positive production externalities

A

Benefits that third party enjoy that are created by producers of goods and services.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Positive consumption externalities

A

Positive externalities that arise from consumption of a good or service.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Asymmetric information

A

Occurs when one party in the market, usually the seller, has some information that the other party, usually the buyer, does not have.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Adverse selection

A

Hidden characteristics, when only one party knows more about a situation than the other party.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Moral hazards

A

Hidden actions, when one party takes actions that the other party cannot observe but which affect both of them.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Cost-benefit analysis

A

A method that assess the desirability of a project which takes into account of all costs and benefits (including social costs and social benefits)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Shadow price

A

One that is applied where there is no recognized market price available.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
39
Q

Isoquant

A

A curve showing the possible combinations of 2 factors of production that can be used to produce the same level of output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
40
Q

Short run

A

Time period when at least one factor of production is in fixed supply.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
41
Q

Total product

A

Total output of a firm.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
42
Q

Marginal product

A

The change in output arising from the use of an additional factor of production.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
43
Q

Production function

A

Graph that shows the maximum possible output from a given set of factor inputs.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
44
Q

Negative marginal returns

A

No returns plus decrease overall output.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
45
Q

Increasing marginal returns

A

The addition of a variable input to a fixed input enables the variable input to be more productive.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
46
Q

Diminishing marginal returns

A

Output from an additional unit of input leads to fall in marginal product.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
47
Q

Firm

A

A business organisation that hires factors of production in order to produce goods and services that can be sold as a profit.

48
Q

Fixed cost

A

Costs that are independent of output in short run.

49
Q

Variable cost

A

Costs that vary directly with output.

50
Q

Short run

A

A period of time where at least 1 factor of production is fixed.

51
Q

Long run

A

A period of time where all factors of productions are variable.

52
Q

Increasing returns to scale

A

Output increase at a proportionately faster rate than increase in factor inputs.

53
Q

Decreasing returns to scale

A

Factor input increase at a proportionately faster rate than increase in output.

54
Q

Isocosts

A

Lines of constant relative costs for the factors of production.

55
Q

Long run average cost (LRAC)

A

LRAC curve shows the least cost combination of production any particular quantity.

56
Q

Minimum efficient scale

A

Lowest level of output at which costs are minimized.

57
Q

Economies of scale

A

Benefits gained from falling LRAC as scale of output increases.

58
Q

Diseconomies of scale

A

LRAC increase as scale of output increase.

59
Q

Internal economies of scale

A

The benefits that arise to firm as a result of its decision to produce on a larger scale.

60
Q

Technical economies (type of internal economies of scale)

A

Advantages gain directly in the production process.

61
Q

Purchasing economies (type of internal economies of scale)

A

Larger firms has higher purchasing power with suppliers.

62
Q

Marketing economies (type of internal economies of scale)

A

Larger firms are able to promote their products on TV or press at lower rates.

63
Q

Managerial economies (type of internal economies of scale)

A

Larger firms employed specialised employees and this increase efficiency, reduce costs.

64
Q

Financial economies (type of internal economies of scale)

A

Large firms usually have better access to borrowed funds than smaller firms.

65
Q

Technological economies (type of internal economies of scale)

A

Firms can make cost savings through the application of online ordering and booking system.

66
Q

Risk-bearing economies (type of internal economies of scale)

A

As firms get larger, they become more diversified.

67
Q

External economies of scale

A

Cost savings accruing to all firms in an industry as scale increases.

68
Q

Revenue

A

Income generated from the sale of goods and services in a market.

69
Q

Marginal revenue

A

Additional revenue received by firm if it sells an additional unit of output.

70
Q

Total revenue for firm

A

Total expenditure from consumer.

71
Q

Profit

A

Difference between total revenue and total cost.

72
Q

Normal profit

A

Cost of production that is sufficient for a firm to keep operating in a particular industry.

73
Q

Abnormal profit (supernormal profit)

A

The profit that is earned above normal profit.

74
Q

Subnormal profit

A

When the profit that is earned by a firm is less than normal profit.

75
Q

Small and medium enterprise (SME)

A

Refers to firms with fewer than 250 employees; small firms have fewer than 50 employees.

76
Q

Industry

A

Sum of all the firms making the same product or in the same line of business.

77
Q

Multinational corporation (MNC)

A

Firm that operate in different countries.

78
Q

Market structures

A

The way in which a market is organised in terms of the number of firms and the barriers to entry of new firms.

79
Q

Barriers to entry

A

Any restrictions that prevent new firms from entering an industry.

80
Q

Perfect competition

A

An ideal market structure that has many buyers and sellers, identical or homogeneous products.

81
Q

Monopoly

A

Monopoly is where a firm controls the entire output of the industry (pure monopoly).

82
Q

Monopolistic competition

A

A market structure where there are many firms, differentiated products and few barriers to entry.

83
Q

Oligopoly

A

A market structure with few firms dominating the market and higher barriers to entry.

84
Q

Natural monopoly

A

Single supplier has substantial cost advantage such that competing producers will raise cost and create duplication which leads to inefficient use of resources.

85
Q

Barrier to exit

A

Any restriction that prevent firms from leaving a market.

86
Q

Price takers

A

Firm must accept whatever price that is set in the market.

87
Q

Horizontal integration

A

Firm grows through merger or acquisition of another firm in the same sector of industry.

88
Q

Collusion

A

Organisations cooperate in secret agreement.

89
Q

Price leadership

A

Market situation whereby a particular firm has the power to change prices.

90
Q

Cartel

A

A formal agreement between firms to limit competition by limiting output or fixing prices.

91
Q

Prisoner’s Dilemma

A

A concept in oligopoly that demonstrates why two otherwise rational people might not cooperate.

92
Q

Price maker

A

Firm that has the power to set the price.

93
Q

X-inefficiency

A

A firm is not producing at the lowest possible cost for a given level of output.

94
Q

Contestable market

A

A contestable market refers to any market structure where there is a threat potential entrants are free and able to enter the market.

95
Q

Product differentiation

A

A strategy adopted by firms that marks their product as being different from their competitors.

96
Q

Game theory

A

A method of modelling the strategic interaction between firms in an oligopoly.

97
Q

Dominant strategy

A

A situation in game theory where a player’s best strategy is independent of those chosen by others.

98
Q

Nash equilibrium

A

A situation occurring within a game when each player’s chosen strategy maximizes payoffs given the other player’s choice, so no player has an incentive to alter behaviour.

99
Q

Tacit collusion

A

A situation occurring when firms refrain from competing on price but without communication or formal agreement between them.

100
Q

N-firm concentration ratio

A

A measure of the market share of the largest n firms in an industry.

101
Q

Economies of scope

A

Reduction in ATC made possible by firm increasing different goods it produces.

102
Q

Internal growth

A

The profits earned are reinvested back into form of new investment projects, rather than paid out as dividends to shareholders.

103
Q

External growth

A

Business expands through mergers and acquisitions.

104
Q

Diversification

A

A firm grows through the production or sale of wide range of different products.

105
Q

Vertical integration

A

A firm grows by producing backwards or forwards in its supply chain.

106
Q

Divorce of ownership and control

A

The fact that a public limited company is owned by one group (shareholders) and controlled and run by another (managers).

107
Q

Principal-agent problem

A

In large public limited companies, the divorce of ownership and control may mean that principals (shareholders) may have different objectives from the agents (managers) and principals cannot guarantee that their agents will operate in the principal’s best interests.

108
Q

Profit satisficing

A

Where there is a divorce of ownership from control, the managers of a frim may wish to deal with all the stakeholders of a firm in such a way that all stakeholders are satisfied; in this situation, satisfactory, rather than maximum, profits may be the objective of a firm.

109
Q

Sales revenue maximisation

A

In some firms, the objective may be to maximise the sales revenue of a firm rather than the profits, so the output would be higher and the price would be lower than the profit maximising position.

110
Q

Sales maximisation

A

Firm’s objective to maximise volume of products sold without making a loss.

111
Q

First degree price discrimination

A

Firm sells each unit of product to different consumers, charging each the price that they are willing to pay.

112
Q

Second degree price discrimination

A

Consumers are willing to purchase more of a product if price falls when more units are bought.

113
Q

Third degree price discrimination

A

A firm charges different prices to different groups of people who have different PED for the product.

114
Q

Limit pricing

A

Firms set a lower short-run price to discourage new entrants into the market.

115
Q

Predatory pricing

A

This occurs when a firm purpose sets a very low price to either force a new firm out of the market (new firm has no choice but to match the price) or to protect its own market share from a rival firm.

116
Q

Price leadership

A

All firms in the market accept the price set by leading firm, usually one with largest market share.

117
Q

Production function

A

A mathematical functional relationship quantity of factor inputs and the total product or output of a product such that with a given combination of factor inputs and technology at a given period of time, the maximum possible output can be produced.

Economics A2 (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions