Economics Year 2 Topic 1 Flashcards
1
Q
Backward vertical
A
A joining together into one firm where the purchaser mergers with suppliers
2
Q
Conglomerate
A
A joining together into one firm producing unrelated products
3
Q
Demerger
A
When a firm splits into two or more independent businesses
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
5
Q
Forward vertical
A
A joining together into one firm where the supplier mergers with a buyer
6
Q
Horizontal
A
A joining together into one firm in the same industry and same stage of production
7
Q
Merger
A
The joining together of two or more firms
8
Q
Not-for-profit organisation
A
Organisations that do not have making profit as a goal but use profit to support their aims
9
Q
Organic growth
A
A firm increasing its size through investment in capital equipment or labour force
10
Q
Vertical
A
A joining together into one firm at different production stages in the same industry
11
Q
Private sector
A
Firms that are owned by individuals and not the state
12
Q
Public sector
A
Firms that are owned and controlled by the state
13
Q
Financial markets
A
Where buyers and sellers can trade financial assets
14
Q
Short run
A
When there is at least one fixed factor of production
15
Q
Long run
A
When all factors of production are variable
16
Q
Total revenue
A
Price X Quantity
17
Q
Average revenue
A
Total revenue / Quantity
or price
18
Q
Marginal revenue
A
% change in total revenue /
% change in quantity
19
Q
Features of perfect competition
A
-infinite buyers and sellers
-homogenous goods (same)
-no barriers to entry/exit
-perfect information
20
Q
Features of imperfect competition
A
-few buyers and sellers
-differentiated goods
-high barriers to entry/exit
-imperfect information
21
Q
super normal profit
A
AR>AC
22
Q
Normal profit
A
AR=AC
23
Q
Maximise profits
A
Business objective
MC=MR
24
Q
DEOS reasons
A
-Control and command
-co-operation- alienation
-internal politics
25
Why do business aim for P.max?
-reinvestment
-dividends for share holders
-lower costs which could lead to lower prices for consumers
-reward for entrepreneurship
26
Why can the business objective P.max be bad?
-Can receive lots of scrutiny
27
Business objectives:
-profit maximisation
-increase market share
-survival
-market power
-growth
-revenue
-social aims
-reputation
-managerial aims
28
Profit maximisation or P.max
MC=MR
29
Sales revenue maximisation or S.R max
MR=O
30
Sales max
AR=AC
31
Why do businesses aim for revenue maximisation?
-Predatory pricing - drive completion out of market
-EOS
32
Why do business aim for sales revenue maximisation?
-flood the market for market share
-limit pricing
33
Profit saficing
Profit to satisfy stakeholders
34
Reasons for business growth
-exploit economies of scale
-more control over its market
-reduce risk
35
Reasons for demergers
-lack of synergies
-price - the price of the demerged firms might be higher then the price of a single larger firm
36
Subnormal
AR < AC.
37
Average variable cost
TVC/ level of output
38
Adverage fixed cost
TFC/level of output
39
Marginal cost
% change in TC
—————————
% change in quantity
40
Allocative effiecenty
(Graph)
MC=AR
41
Productive efficienty
(Graph)
MC=AC
42
Pure Monopoly
1 firm with 100% market share
43
Monopoly power
(Legal monopoly)
1 firm on their own has at least 25% market share
44
Features of a monoploy
-High barriers of entry
-Differentiated products
Which means monopoly is the price maker
-Imperfect information of market conditions
-Firm is p.max
45
Cartel
Formal agreement between firms to limit competition in the market
46
Collusion
Collective agreements between firms to restrict competition
47
Duopoly
An industry has two firms
48
Concentrated market
Most of a market output is produced by few firms
49
Game theroy
The analysis of situations in which players are independent
50
Overt collusion
Where firms make an agreement among themselves to restrict competition
51
Price agreement
Where two or more firms agreed to fix prices
52
Price follower
A firm which sets its price by reference to the prices set by the price leader
53
Price leadership
One firm,sets it’s own price and other firms set their price in relation to the price leader
54
Tacit collusion
Firms collide without any formal agreement and where no explicit communication between firms and strategies
55
Price war
Several firms in a market repeatedly lower their prices to outcompete other firms
56
Oligopoly
Few large firms dominate the market selling similar products
57
Oligopoly’s tend to compete on non price factors:
-innovation
-branding
-quality
-loyalty schemes
58
Winners of price wars
-regular consumers
-managers -> higher sales
59
Losers of a price war
-shareholders -> lower profit
-suppliers may get squeezed
60
Lack of synergies
-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
Price
(Demergers)
-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
Dynamic efficiently
-Is concerned with how resources are allocated over a period of time
-SNP -> reinvested
63
Productive efficiency
-MC=AC
-Lowest possible cost
-best for consumers
64
X-inefficiently
-not becoming more efficient due to lack of incentive to do so
-e.g no competition
65
Allocative efficiency
-MC=P
-measures whether resources are allocated to those goods & services demanded by consumers
66
Reasons for firms to grow
-Exploit EOS
-Less risk
-Control markets
67
Reasons for firms to stay small
-niche markets
-EOS could be limited
-Avoid principle agent problem
-avoid tax
68
Predatory pricing
Firm lowers it’s prices when a new entrant comes into the market to force them out the market
69
Limit pricing
Setting a low enough price to deter new entrants
70
Price discrimination
Charging a different price for the same good or service
71
Demand for Labour
-the demand for Labour shows how many workers a business is willing & able to hire at a wage rate
72
Elasticity of Labour
-measure the responsiveness of demand when there is a change in the wage rate
73
What Factors affect demand for labour?
-labour productivity
-cost of using capital
-employee taxes
-Marco economy
-derived demand
74
Derived demand
As demand for a product or service increases so does demand for labour
75
Substitution effect
(Before job)
Higher hourly wage makes work more attractive then leisure, so workers substitute leisure for labour
76
Positive income effect
We work more as wages increase to increase income
77
Negative income effect
Wages go up we actually work less due to our target income being met
78
Factors that affect changes in labour supply?
-real wages rate
-extra pay
-wages in substitution industries
-occupation mobility of Labour
-net migration
79
Market failure how does G intervene?
(Labour market)
-income tax allowance rasied
-40% higher tax rate raised
-free child care
-increase minimum wage
80
Elasticity of Labour supply
Measures the extent of which labour supply responds to a change in the wage rate
81
Elastic supply of Labour
-highly responsive to changes in wage rate
-low skilled jobs & industries
82
Inelastic supply
-not responsive to wage rate
-jobs require skills & training
83
Issues in the Labour market:
-qualifications
-discrimination- gender,age
-zero hour contracts
-the gig economy-Uber-no longer 9-5
84
Migration in labour markets
-increased competition
-could bring skills
-could lower wages
85
Mobility Problems in labour markets?
-geographical mobility
-occupational mobility
86
Features of a monopolistic competition?
SR- SNP
LR- NP
-slightly differentiated goods
-non-price competition
-no efficiency
87
Features of an oligopolies?
-collusion
-firms are interdependent
-supply is in few forms
-price rigidity
88
Monopsony
Market with one powerful buyer and lots of sellers
89
Contestablity
What the barriers of entry are like
90
Sunk costs
Costs that are non recoverable
91
RPI-X
A firm can only increase prices in line with inflation
92
RPI-K
Allows business to increase prices for investment purposes
93
Tax evasion
-is illigal
-not declaring income
94
Tax avodience
-legal
-finding loop holes
95
Price rigidity
firms may be hesitant to change their prices for fear of triggering a price war or losing market share to their rivals
96
Regulatory capture
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
Factors that affect supply of labour
-migration
-overtime
-wage rate
-B2E
-non-monetary characteristics e.g working conditions and job security
-income tax
-reduction in job seekers allowance
98
Factors that effect demand for Labour
-derived demand
-legislation
-subsitutiblity of the factors of production
99
Supply of Labour
Quantity of Labour supplied at a given wage rate
100
Contestable market
-low B2E
-large pool of potential entrants
-good information
