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Econmics > Economics Year 2 Topic 1 > Flashcards

Economics Year 2 Topic 1 Flashcards

1
Q

Backward vertical

A

A joining together into one firm where the purchaser mergers with suppliers

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2
Q

Conglomerate

A

A joining together into one firm producing unrelated products

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3
Q

Demerger

A

When a firm splits into two or more independent businesses

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4
Q

Divorce of ownership from control

A

happens when the owners of a business do not control the day-to-day decisions made in the business

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5
Q

Forward vertical

A

A joining together into one firm where the supplier mergers with a buyer

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6
Q

Horizontal

A

A joining together into one firm in the same industry and same stage of production

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7
Q

Merger

A

The joining together of two or more firms

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8
Q

Not-for-profit organisation

A

Organisations that do not have making profit as a goal but use profit to support their aims

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9
Q

Organic growth

A

A firm increasing its size through investment in capital equipment or labour force

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10
Q

Vertical

A

A joining together into one firm at different production stages in the same industry

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11
Q

Private sector

A

Firms that are owned by individuals and not the state

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12
Q

Public sector

A

Firms that are owned and controlled by the state

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13
Q

Financial markets

A

Where buyers and sellers can trade financial assets

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14
Q

Short run

A

When there is at least one fixed factor of production

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15
Q

Long run

A

When all factors of production are variable

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16
Q

Total revenue

A

Price X Quantity

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17
Q

Average revenue

A

Total revenue / Quantity
or price

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18
Q

Marginal revenue

A

% change in total revenue /
% change in quantity

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19
Q

Features of perfect competition

A

-infinite buyers and sellers
-homogenous goods (same)
-no barriers to entry/exit
-perfect information

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20
Q

Features of imperfect competition

A

-few buyers and sellers
-differentiated goods
-high barriers to entry/exit
-imperfect information

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21
Q

super normal profit

A

AR>AC

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22
Q

Normal profit

A

AR=AC

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23
Q

Maximise profits

A

Business objective
MC=MR

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24
Q

DEOS reasons

A

-Control and command
-co-operation- alienation
-internal politics

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25
Q

Why do business aim for P.max?

A

-reinvestment
-dividends for share holders
-lower costs which could lead to lower prices for consumers
-reward for entrepreneurship

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26
Q

Why can the business objective P.max be bad?

A

-Can receive lots of scrutiny

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27
Q

Business objectives:

A

-profit maximisation
-increase market share
-survival
-market power
-growth
-revenue
-social aims
-reputation
-managerial aims

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28
Q

Profit maximisation or P.max

A

MC=MR

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29
Q

Sales revenue maximisation or S.R max

A

MR=O

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30
Q

Sales max

A

AR=AC

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31
Q

Why do businesses aim for revenue maximisation?

A

-Predatory pricing - drive completion out of market
-EOS

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32
Q

Why do business aim for sales revenue maximisation?

A

-flood the market for market share
-limit pricing

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33
Q

Profit saficing

A

Profit to satisfy stakeholders

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34
Q

Reasons for business growth

A

-exploit economies of scale
-more control over its market
-reduce risk

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35
Q

Reasons for demergers

A

-lack of synergies
-price - the price of the demerged firms might be higher then the price of a single larger firm

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36
Q

Subnormal

A

AR < AC.

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37
Q

Average variable cost

A

TVC/ level of output

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38
Q

Adverage fixed cost

A

TFC/level of output

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39
Q

Marginal cost

A

% change in TC
—————————
% change in quantity

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40
Q

Allocative effiecenty
(Graph)

A

MC=AR

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41
Q

Productive efficienty
(Graph)

A

MC=AC

42
Q

Pure Monopoly

A

1 firm with 100% market share

43
Q

Monopoly power
(Legal monopoly)

A

1 firm on their own has at least 25% market share

44
Q

Features of a monoploy

A

-High barriers of entry
-Differentiated products
Which means monopoly is the price maker
-Imperfect information of market conditions
-Firm is p.max

45
Q

Cartel

A

Formal agreement between firms to limit competition in the market

46
Q

Collusion

A

Collective agreements between firms to restrict competition

47
Q

Duopoly

A

An industry has two firms

48
Q

Concentrated market

A

Most of a market output is produced by few firms

49
Q

Game theroy

A

The analysis of situations in which players are independent

50
Q

Overt collusion

A

Where firms make an agreement among themselves to restrict competition

51
Q

Price agreement

A

Where two or more firms agreed to fix prices

52
Q

Price follower

A

A firm which sets its price by reference to the prices set by the price leader

53
Q

Price leadership

A

One firm,sets it’s own price and other firms set their price in relation to the price leader

54
Q

Tacit collusion

A

Firms collide without any formal agreement and where no explicit communication between firms and strategies

55
Q

Price war

A

Several firms in a market repeatedly lower their prices to outcompete other firms

56
Q

Oligopoly

A

Few large firms dominate the market selling similar products

57
Q

Oligopoly’s tend to compete on non price factors:

A

-innovation
-branding
-quality
-loyalty schemes

58
Q

Winners of price wars

A

-regular consumers
-managers -> higher sales

59
Q

Losers of a price war

A

-shareholders -> lower profit
-suppliers may get squeezed

60
Q

Lack of synergies

A

-This means one part of the firm is having no impact on the profitable and efficient other firm.
-can lead to DEOS if managers have to split time between firms

61
Q

Price
(Demergers)

A

-This means the firms were worth more separate then they are together
-if one half of the business is growing fast and the other half is slow the overall price could be brought down

62
Q

Dynamic efficiently

A

-Is concerned with how resources are allocated over a period of time
-SNP -> reinvested

63
Q

Productive efficiency

A

-MC=AC
-Lowest possible cost
-best for consumers

64
Q

X-inefficiently

A

-not becoming more efficient due to lack of incentive to do so
-e.g no competition

65
Q

Allocative efficiency

A

-MC=P
-measures whether resources are allocated to those goods & services demanded by consumers

66
Q

Reasons for firms to grow

A

-Exploit EOS
-Less risk
-Control markets

67
Q

Reasons for firms to stay small

A

-niche markets
-EOS could be limited
-Avoid principle agent problem
-avoid tax

68
Q

Predatory pricing

A

Firm lowers it’s prices when a new entrant comes into the market to force them out the market

69
Q

Limit pricing

A

Setting a low enough price to deter new entrants

70
Q

Price discrimination

A

Charging a different price for the same good or service

71
Q

Demand for Labour

A

-the demand for Labour shows how many workers a business is willing & able to hire at a wage rate

72
Q

Elasticity of Labour

A

-measure the responsiveness of demand when there is a change in the wage rate

73
Q

What Factors affect demand for labour?

A

-labour productivity
-cost of using capital
-employee taxes
-Marco economy
-derived demand

74
Q

Derived demand

A

As demand for a product or service increases so does demand for labour

75
Q

Substitution effect

A

(Before job)
Higher hourly wage makes work more attractive then leisure, so workers substitute leisure for labour

76
Q

Positive income effect

A

We work more as wages increase to increase income

77
Q

Negative income effect

A

Wages go up we actually work less due to our target income being met

78
Q

Factors that affect changes in labour supply?

A

-real wages rate
-extra pay
-wages in substitution industries
-occupation mobility of Labour
-net migration

79
Q

Market failure how does G intervene?
(Labour market)

A

-income tax allowance rasied
-40% higher tax rate raised
-free child care
-increase minimum wage

80
Q

Elasticity of Labour supply

A

Measures the extent of which labour supply responds to a change in the wage rate

81
Q

Elastic supply of Labour

A

-highly responsive to changes in wage rate
-low skilled jobs & industries

82
Q

Inelastic supply

A

-not responsive to wage rate
-jobs require skills & training

83
Q

Issues in the Labour market:

A

-qualifications
-discrimination- gender,age
-zero hour contracts
-the gig economy-Uber-no longer 9-5

84
Q

Migration in labour markets

A

-increased competition
-could bring skills
-could lower wages

85
Q

Mobility Problems in labour markets?

A

-geographical mobility
-occupational mobility

86
Q

Features of a monopolistic competition?

A

SR- SNP
LR- NP
-slightly differentiated goods
-non-price competition
-no efficiency

87
Q

Features of an oligopolies?

A

-collusion
-firms are interdependent
-supply is in few forms
-price rigidity

88
Q

Monopsony

A

Market with one powerful buyer and lots of sellers

89
Q

Contestablity

A

What the barriers of entry are like

90
Q

Sunk costs

A

Costs that are non recoverable

91
Q

RPI-X

A

A firm can only increase prices in line with inflation

92
Q

RPI-K

A

Allows business to increase prices for investment purposes

93
Q

Tax evasion

A

-is illigal
-not declaring income

94
Q

Tax avodience

A

-legal
-finding loop holes

95
Q

Price rigidity

A

firms may be hesitant to change their prices for fear of triggering a price war or losing market share to their rivals

96
Q

Regulatory capture

A

It occurs when firms in an industry are able to influence a regulating body which is suppose to be regulating the behaviour of the firm

97
Q

Factors that affect supply of labour

A

-migration
-overtime
-wage rate
-B2E
-non-monetary characteristics e.g working conditions and job security
-income tax
-reduction in job seekers allowance

98
Q

Factors that effect demand for Labour

A

-derived demand
-legislation
-subsitutiblity of the factors of production

99
Q

Supply of Labour

A

Quantity of Labour supplied at a given wage rate

100
Q

Contestable market

A

-low B2E
-large pool of potential entrants
-good information

Econmics (5 decks)

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