Key Terms 2 Flashcards
Adverse Selection
A situation where good suppliers are forced out of a market because consumers arn’t prepared to pay the price that they need to charge in order to survive
Consumer moral hazard
A situation in which consumers get involved in a risky event knowing that it is protected against the risk and the producer will incur the cost
Deadweight welfare loss
The amount of social welfare lost forever as a result of either a market failure or a producer artificially raising prices
Demerit goods
Products which are considered to be bad by society because they generate negative externalities in production
Externalities
A cost or benefit that is felt outside of the market by third parties
Externalities in consumption
A third party effect of a market that is created in the consumption of a product
Externalities in production
A third parry effect of a market that is created in the production of a product
Factor immobility
A situation where scarce resources are not easily moved between different uses
Imperfect knowledge
A situation where a decision maker does not have the full information required to make a good decision
Information asymmetry
A situation where either the producer or the consumers better information about a market than the other one
Information failure
A situation where there is imperfect knowledge when decisions are being made
Irrational Behaviour
A situation in which a decision maker makes a decision that is not drive by the desire to maximise their own self interest
Labour immobility
A situation where workers are not easily able to move between jobs
Marginal external benefit
The extra benefit of producing an extra unit of output received by people outside the market
Marginal external cost
The extra cost of producing an extra unit of output paid by people outside the market
Marginal private benefit
The extra benefit of producing an extra unit of output received by people inside the market
Marginal private cost
The extra cost of producing an extra unit of output paid b y people inside the market
Marginal social benefit
The total extra benefit of producing an extra unit of a product. It is calculated by adding MPC to MEC
Marginal social cost
The total extra cost of producing an extra unit of a product. Calculated by adding MPC to MEC
Market failure
A situation where a market doesn’t efficiently allocate scarce resources
Merit goods
Products that are valued by society because they create positive externalities in consumption
Moral hazard
A situation in which one party gets involved in a risky event knowing that it is protected against risk and the other party will incur the cost
Natural monopoly
A situation where the market means only one firm can survive
Negative externalities
A third party effect of a market that is bad
Non excludable
Products where a consumer cannot be stopped from consuming the product if they don’t pay for it
Non rival
Products where the consumption of a product does not stop other people from consuming it
Partially missing market
A market where a product is provided but it is either over or under produced
Positivity externalities
A third party effect of a market that is good
Pure monopoly
A market in which there is only one firm
quasi public goods
Products which have one of the two characteristics of public goods
public goods
Products which are both non excludable and non rival
The command system
A way of organising an economy so that decisions about the allocation of scarce resources are made by the government
The market system
A way of organising an economy so that all decisions about the allocation of scarce resources are made by producers and consumers so the forces of supply and demand
The mixed system
A way of organising an economy so that decisions about the allocation of scarce resources are sometimes made by the forces of supply and demand and sometimes by the government
Barriers to entry
Characteristics of a market that make it more difficult for a business to set up in an industry
Concentration
The degree to which an industry is made up of a few large firms
Concentration ratio
A measure of the market share control by the largest firms in the industry
Differentiation
The way a producer makes their goods different from similar products
Monopolistic competition
A market made up of many small buyers and sellers, where products are very slightly differentiated, there are no barriers to entry and there is perfect knowledge
Monopoly power
A measure of the extent to which a business influences its own prices without loosing out to competitors
Oligopoly
A market made up of few very large firms that are independent
Perfect competition
A market made up of many small buyers and sellers, where products are homogenous and their are no barriers to entry
Abnormal profit
The profit of a business that is more than the opportunity cost to them staying in the industry
Acounting profit
The profit published by business for tax purposes, calculated by subtracting total costs from total revenues
Average total cost
The mean of the costs of producing a product - the cost of producing one item
Break even
Where a businesses sells enough items so that its revenue equals its costs so that the profit is zero
Average revenue
The mean selling price of a product ie the money brought into a business from selling one unit
Capital goods
Products that are produced in order to produce other products
Capital Intensive
Where the output of a business is produced using a higher proportion of machinery than workers
Communication diseconomies
where growing businesses are increasingly difficult to run as a result of communication difficulties so that the unit cost rises as the business grows
control diseconomies
where the unit costs of a business rises as it grows as a result of the business getting more difficult to control
Diseconomies of sale
where the unit costs increase as the size of a business increases
Cooperation economies
where the unit costs of a business falls as a result of the industry going and the competing firms workigntogethe e.g on research and development
economies of scale
the falling cost of production per unit as output increases
External economies of scale
cost saving benefits which arise when similar businesses are located near each other
Financial economies
when the unit costs of a business falls as it grows because it is more able to negotiate better interest rates with its bank
intermediate goods
products that are made to be used as part of another larger product
Labour intensive
where the output of a business is produced using a larger proportion of workers than machinery
labour relations diseconomies
diseconomies of scale because a businesses employees are more likely to take industrial action to get pay rises
long run
A period of time where all factors of production are variable
long run average cost
the cost of making one unit when all factors of production are variable
managerial economies
economies of scale as a result of a business employing specialist managers, who will be more efficient
market sales
the percentage of industry sales madd by one firm in that industry
market share maximisation
an objective of a business where they are trying to be the largest firm in that industry
minimum efficient scale
the smallest size that a business can be and still and still be at the lowest point of its average cost curve
normal profit
the minimum amount of profit required by the entrepreneur to stop them from moving industry. It is also known as the opportunity cost of the entrepreneur
optimum scale
There size of a businsess that minimises its unit costs in the long run
outsourcing economies
economies of scale as a result of the business being able to save money by contracting outside companies to undertake a part of its production process
purchasing economies
economies of scale as a result of the business being able to buy stock in bulk in order to get cos reductions
risk bearing economies
economies of scale as a result of a business being able to spread the risks of its operations over a greater number of products
sales revenue
the amount of money coming into a business by selling its products
Sales revenue maximisation
an object of a business where they are tying to achieve the highest possible amount of products sold
short run
A period of time where at least one factor of production is fixed
specialisation
the act of concentrating on one or a small number of things in order to get good at them
support services economies
economies of sales because other businesses set up near the business in order to provide it with services
surplus output
the extra output created in specialisation that we do not need for ourselves
surplus value
the different between the cost of producing a product and the price consumers are willing to pay, which workers create but are not paid for
survival
an objective of a business where they are trying to achieve just enough profit to keep them in business
technical economies
economies of scale as a result of a business being able to buy better machinery as it grow
