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Econ > Definitions Theme 3 > Flashcards

Definitions Theme 3 Flashcards

1
Q

Allocative efficiency

A

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

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2
Q

Asymmetric
information

A

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

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3
Q

Average cost/average
total cost (AC/ATC)

A

The cost of production per unit
total costs/
quantity produced

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4
Q

Average revenue (AR)

A

The price each unit is sold for
TR/quantity sold

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5
Q

Bilateral monopoly

A

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

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6
Q

Cartels

A

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

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7
Q

Collusion

A

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

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8
Q

Competition policy

A

Government action to increase competition in markets

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9
Q

Competitive tendering

A

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

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10
Q

Conglomerate
integration

A

The merger of firms with no common connection

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11
Q

Constant returns to
scale

A

Output increases by the same proportion that the inputs increase by

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12
Q

Contestable market

A

When there is the threat of new entrants into the market, forcing firms to be efficient

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13
Q

Decreasing returns to
scale

A

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

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14
Q

Demergers

A

A single business is broken into two or more businesses to operate on
their own, to be sold or to be dissolved

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15
Q

Deregulation

A

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

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16
Q

Derived demand

A

The demand for one good is linked to the demand for a related good

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17
Q

Diminishing marginal
productivity

A

If a variable factor is increased when another factor is fixed, there will
come a point when each extra unit of the variable factor will produce less extra output than the previous unit; after a certain point, marginal
output falls

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18
Q

Diseconomies of scale

A

The disadvantages that arise in large businesses that reduce
efficiency and cause average costs to rise

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19
Q

Divorce of ownership
from control

A

Firms are owned by shareholders, who have little say in the day to
day running of the business, and controlled by managers; this leads to the principal-agent problem

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20
Q

Dynamic efficiency

A

Efficiency in the long run; concerned with new technology and
increases in productivity which causes efficiency to increase over a
period of time

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21
Q

Economies of scale

A

The advantages of large scale production that enable a large
business to produce at a lower average cost than a smaller business

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22
Q

External economies of
scale

A

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

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23
Q

Fixed cost

A
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24
Q

For-profit business

A

A business whose main aim is to make money

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25
Q

Game theory

A

Used to predict the outcome of a decision made by one firm, when it
has incomplete information about the other firm

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26
Q

Geographical mobility
of labour

A

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

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27
Q

Horizontal integration

A

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

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28
Q

Increasing returns to
scale

A

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

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29
Q

Interdependent

A

The actions of one firm directly affects another firm

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30
Q

Internal economies of
scale

A

An advantage that a firm is able to enjoy because of growth in the
firm, independent of anything happening to other firms or the industry in general

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31
Q

Limit pricing

A

When firms set prices low in order to prevent new entrants; used in
contestable markets

32
Q

Loss

A

When revenue does not cover costs

33
Q

Marginal cost

A

The additional cost of producing one extra unit of good

34
Q

Marginal revenue

A

The additional revenue gained by selling one extra unit of good

35
Q

Maximum wage

A

A ceiling wage which people cannot earn above

36
Q

Minimum efficient
scale

A

The lowest level of output necessary to fully exploit economies of
scale

37
Q

Minimum wage

A

A floor wage which people cannot earn below

38
Q

Monopolistic
competition

A

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

39
Q

Monopoly

A

A single seller in the market

40
Q

Monopsony

A

A single buyer in the market

41
Q

N-firm concentration
ratio

A

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

42
Q

Nationalisation

A

When a private sector company or industry is brought under state
control, to be owned and managed by the government

43
Q

Natural monopoly

A

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

44
Q

Non-collusive
oligopoly

A

When firms in an oligopoly compete against each other, rather than
making agreements to reduce competition

45
Q

Non-price competition

A

When firms compete on factors other than price, for example
customer service or quality; they aim to increase the loyalty to the
brand which makes demand more inelastic

46
Q

Normal profit

A

The minimum reward required to keep entrepreneurs supplying their
enterprise, the return sufficient to keep the factors of production
committed to the business; TC=TR

47
Q

Not-for-profit business

A

Where firms are run in order to maximise social welfare and help
individuals and groups; any profit they do make is used to support
their aims

48
Q

Occupational mobility
of labour

A

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

49
Q

Oligopoly

A

Where a few firms dominate the market and have the majority of
market share, they act interdependently

50
Q

Organic growth

A

Where firms grow by increasing their output

51
Q

Overt collusion

A

Collusion where firms come to a formal agreement, for example a
cartel

52
Q

Perfect competition

A

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

53
Q

Perfectly contestable
market

A

A market with no barriers to entry, where a new firm can easily enter
and compete against incumbent firms completely equally

54
Q

Predatory pricing

A

When a large, established firm is threatened by new entrants so sets
such a low price that other firms make losses and are driven out the
market

55
Q

Price leadership

A

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

56
Q

Price wars

A

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

57
Q

Principal-agent
problem

A

Where the agent makes decisions on behalf of the principal; the agent
should maximise the benefits of the principal but have the temptation
of maximising their own benefits

58
Q

Private sector

A

The part of the economy that is owned and run by individuals or
groups of individuals

59
Q

Privatisation

A

The sale of government equity in nationalised industries or other firms to private investors

60
Q

Productive efficiency

A

When resources are used to give the maximum possible output at the
lowest possible cost; MC=AC

61
Q

Profit maximisation

A

When firms produce at a point which derives the greatest profit;
MC=MR

62
Q

Profit satisficing

A

When a firm earn just enough profit to keep its shareholders happy

63
Q

Public sector

A

The part of the economy that is owned or controlled by local or central government

64
Q

Regulatory capture

A

When regulators become more empathetic and are able to ‘see things from the firm’s perspective’, which removes impartiality and weakens their ability to regulate

65
Q

Revenue maximisation

A

When firms produce at a point which derives the greatest revenue;
MR=0

66
Q

Sales maximisation

A

When firms produce at a point where they sell as many of their goods
and services as possible without making a loss; AR=AC

67
Q

Static efficiency

A

The level of efficiency at one point in time

68
Q

Sunk cost

A

Costs that cannot be recovered once they have been spent

69
Q

Supernormal profit

A

The profit above normal profit, TR>TC

70
Q

Tacit collusion

A

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

71
Q

Third degree price
discrimination

A

When monopolists charge different prices to different groups for the
same good or service

72
Q

Total cost

A

The cost to produce a given level of output
total variable costs+total fixed costs

73
Q

Total revenue

A

Revenue generated from the sale of a given level of output
price x quantity sold

74
Q

Variable cost

A

Costs which change with output

75
Q

Vertical integration

A

When a firm merges or takes over another firm in the same industry,
but at a different stage of production

Econ (15 decks)

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