definitions Flashcards
Medium of exchange
money can be used to exchange, goods and services and avoid the double coincidence of
wants
Normal profit
The minimum level of profit needed to keep a firm in the market in the long run
Price maker
Affirm the influences price when it changes its output
Price taker
Affirm that has no influence on the price
Productivity
Output per worker per unit of time
Profit maximisation
achieving the highest possible profit where MC=MR
short run
A period of time, during which, at least one factor of production is fixed in its supply (usually capital)
Long run
A period of time, during which all factors of production are fixed in its supply
total revenue
Price x quantity sold
Barriers to entry
Obstacles that prevent new competitors from easy The, entering in an industry or area of business
Barriers to exit
obstacles in the part of a firm, which wants to leave a given market or industrial sector
supernormal profit
A payment over and above normal profit
For example, profit where AR>AC
economies of scale
where an increase in the scale of production leads to a decrease in LRAC
Dis economies of scale
where an increase in the scale of production leads to an increase in LRAC
external disceconomies of scale
when an increase in the scale of production leads to a increase in LRAC due to growth of the industry in which the firm operates
external economies of scale
When an increase in the scale of production lead to a decrease in LRAC due to growth of the industry in which the firm operates
Internal economies of scale
when an increase in the scale of production leads to a decrease in LRAC, due to the growth of the firm itself
internal diseconomies of scale
When an increase in the scale of production leads to an increase in LRC due to growth of the firm itself
Law of diminishing marginal returns
The decrease in the marginal output of a production process, as the amount of a single factor of production is increased
Marginal returns
The extra output derived per extra unit of factor employed (usually labour)
increasing returns to scale
output increases by a larger proportion than the increase in inputs during the production process
constant returns to scale
output increases by an equal proportion to the increase in inputs during the production process
decrease returns to scale
output increase by a lower proportion than increase in inputs during the production process
concentration ratio
the percentage of an industry which can be accounted for by the largest firms
constestable market
A market in which there are no barriers to entry and exit, and the costs facing both incumbent and new firms are equal
hit and run entry
Firms can quickly enter a market where there are supernormal profits, and leave it when the profits disappear
Sunk costs
costs incurred by a firm, that cannot be recovered, if the firm Ceases trading
features of perfect competition
– Many firms
– Homogenous products
– Normal profit (long run)
– Perfect information
– No barriers to entry or exit
– Price competition only
– Price takers
features of monopolistic competition
– Some unique products
– Many firms
– Normal profit (long run)
– Low barriers to entry or exit
– Price and non-price competition
– Some price setting power
features of an oligopoly
– Very few firms
– Some unique products
– Supernormal profit
– Imperfect information
– High barriers to entry or exit
– Price and non-price competition
– Interdependence
– price makers
features of monopoly
– One firm
– Unique products
– supernormal profit
– High barriers to entry
– Price and non-price competition
– Price makers
– Imperfect information
Features of a contestable market
– No brand loyalty
– No barriers to entry or exit
– No supernormal profits (long run)
– Hit and run entry
– Same costs and tech for New and existing firms
– no sunk costs
– Allocative and productive efficiency
– No dynamic efficiency
– Lack of collusion
division of labour
A process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages
dominant strategy
a strategy that earns a player a larger payoff, irrespective of what other players do
dynamic efficiency
form of productive efficiency that benefits a firm over time ( in terms of developing a new product )
first degree PD
where different prices are given to individual customers for the same product for reasons not associated with cost
game theory
a theory of how decision makers are influenced by the actions and reaction of others
interdependence
where the actions of one firm effects the sales and revenue of other firms within the market
kinked demand curve
a demand curve made up of 2 parts, it suggests oligopolists follow each others price reductions but not price rises
oligopoly
market stucture dominated by few large firms
profit satisficing
aiming for a satisfactory level of profit rather than the highest level of profit possible
Second-degree price discrimination
Where different prices are charged for different quantities of of a product, larger quantities may be available at a lower price
X. Inefficiency.
The difference between actual cost and attainable costs
3rd° price discrimination
Where the same product is sold to different consumers in different markets are different prices. These consumers may be grouped by characteristics.
Specialisation
natural monopoly
Average cost diminishes over a large range of output as there are very high fixed costs that are spread out over increasing levels of output
