Definitions Flashcards
What is productive efficiency?
When a firm is producing its product at the lowest possible unit cost ( MC = AC)
What is allocative efficiency?
When suppliers are producing the optimal mix of goods and services required by consumers (MC = AR).
BUT, actually allocative efficiency is the price of the last good sold (above is only true if just one price is set).
Short Run shut down point?
When a firm can’t even cover its variable costs.
If AVC > AR then firm will make less of a loss if they don’t produce anything!
Predatory Pricing
Selling below cost in order to force other competitors out of the market - similar to dumping.
Examples of anti-competitive behaviour
One theory & and one real world example — not related though
- Predatory pricing
- Microsoft building its own programmes into its operating systems, thus preventing other firms from competing - fined €497 million in 2006 by EU Competition Commission for not paying the original reparations.
What are the Four factors of production?
- Land.
- Labour
- Capital.
- Enterprise.
What is the definition of the Short Run vs the Long Run?
Short Run is when there is at least one factor of production that is fixed, whilst all factors of production are variable in the long run.
what is the substitution effect?
The opportunity cost of not working.
What is the income effect?
With a higher wage rate, one does not need to work as many hours to earn the same income.
What is dynamic efficiency?
Constant innovation and updating products in order to reflect changing consumer needs and preferences.
What are the four roles of the market equilibria?
- Signalling - prices show where resources should go.
- Rationing - prices being “bid up” leading to only those that most want to good getting it.
- Incentives - CONSUMERS: change consumption patters, PRODUCERS: change production patterns.
- Allocation - Incentive to allocate FoP most effectively.
Two different types of tax
- Unit tax.
2. Ad Valorum (percentage of price)
