key terms (micro)

Question 1

Define de-layering

Answer 1

Removing one or more levels of hierarchy from the organisational structure

Question 2

Define de-merger

Answer 2

The hiving off of one or more business units from a group

Question 3

Define vertical integration

Answer 3

Acquiring a business in the same industry but at at different stages of the supply chain.

Question 4

Define organic growth

Answer 4

Internal growth without resorting to takeovers and mergers

Question 5

Define creative destruction

Answer 5

The dynamic effects of innovation in markets

Question 6

Give an example of de-merging

Answer 6

Fraser group sold dunlop in 2016

-Travis Perkins sold Wickes DIY chain

Question 7

Give an example of vertical integration

Answer 7

Amazon managed to get stakes in deliveroo (around 16%)

Question 8

Give an examples of Organic growth.

Answer 8

Aldi

Question 9

How is creative destruction of AI dangerous to the labour market.

Answer 9

Risks taking over peoples jobs e.g. self checkouts, driver-less cabs, call centres.

Question 10

how can X-inefficiency occur.

Answer 10

• A lack of technical efficiency
• Where a firm suffers from internal slackness and has little incentive to control costs
• Inefficiencies arising in natural monopolies.

Question 11

what type of efficiency would a public welfare-seeking broadcaster achieve if successful?

Answer 11

Allocative efficiency - trying to please consumers and provide the amount consumers want.

Question 12

What is required for a take over to become effective?

Answer 12

• Formal approval by acquiring company’s shareholders
• The buyer must obtain at least 51% of the shares of the target company
• Formal approval by the target company’s shareholders.

Question 13

Advantages of organic growth.

Answer 13

• Builds on a business’ strengths
• Can be financed through internal funds/retained profits

Question 14

Disadvantages of organic growth

Answer 14

• Hard to build extra market share if business is already a leader
• Slow growth - shareholders may prefer more rapid growth.

Question 15

what are functions of price?

Answer 15

SIR

• Rationing
• Signalling
• Incentive

Question 16

What is an ad valorem tax.

Answer 16

A tax based on the value of a product or service, rather than on the quantity or weight of the item.

Question 17

What are ancillary revenues?

Answer 17

Revenue generated that’s not from a company’s core products and services.

Question 18

What are rent controls?

Answer 18

Rent control is a government program that places a limit on the amount that a landlord can demand for leasing a home or renewing a lease.

Question 19

Arguments against rent control?

Answer 19

• rent control reduces the supply of decent housing - landlords rather turn them into condominiums to increase profits
• Investment in new rental housing screeches to a halt
• maintenance of buildings under rent control is lax or non-existent because of poor return on investment for landlords.

Question 20

Main arguments for rent control regulations?

Answer 20

• Rental prices in many cities are rising far faster than wages for moderate income jobs
• Could enable moderate-income families and people on fixed incomes to live decently without fear of personally catastrophic rent hike.
• Neighbourhoods are safer and more stable with a base of long term residents in rent controlled apartments

Question 21

what is the definition of a firm

Answer 21

A firm is a business organisation such as a corporation that produces and sells goods and services with the aim of generating revenue and making a profit.

Question 22

what is the difference between marginal utility and total utility?

Answer 22

Total utility is the total amount of satisfaction derived from consuming a certain amount of a good while marginal utility is the additional satisfaction gained from consuming an additional unit of the good.

For example, if you buy and eat three doughnuts from a shop, the marginal utility of the first doughnut might be 15 utils, while the second one might be six utils and the third might be two utils. Adding those figures together, you find that the total utility is 24.

Question 23

what can the theory of diminishing marginal utility be used to explain?

Answer 23

Used to explain why the demand curve is downwards slopiong.

Question 24

What does the law of marginal utility state?

Answer 24

As a product is consumed more, the extra satisfaction will decline.

Question 25

What are reasons why supply could be elastic?

Answer 25

• If there is spare capacity in the factory.
• If there are stocks available.
• In the long run, supply will be more elastic because capital can be varied.
• If it is easy to employ more factors of production.
• If a product can be sold from the internet which increases the scope of international competition and increases options for supply.