Key Words Flashcards

1
Q

Allocative efficiency

A

When an economy produces the appropriate amount of goods and services relative to consumer’s demand

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2
Q

Average cost

A

Total cost divided by the quantity produced

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3
Q

Backwards integration

A

When a firm merges with another firm that is involved in an earlier stage of the production process

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4
Q

Barrier to entry

A

A characteristic of a market that prevents new forms from readily joining the market

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5
Q

Cartel

A

An agreement between firms on price and output with the intention of maximising their joint profits

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6
Q

Competition policy

A

A set of measures to promote competition in markets and protect consumers in order to enhance the efficiency of markets

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7
Q

Conglomerate merger

A

A merger between two firms operating in different markets

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8
Q

Constant returns to scale

A

When LRAC remains constant with an increase in output

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9
Q

Contestable market

A

A market in which the existing firm makes only normal profit, as it cannot set a higher price without attracting entry, due to the absence of barriers to entry and sunk costs

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10
Q

Corporate social responsibility (CSR)

A

Actions that a firm takes in order to demonstrate its commitment to behaving in the public interest

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11
Q

Cost-plus pricing

A

A pricing policy where firms set their price by adding a mark-up to average cost

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12
Q

Derived demand

A

Demand for a good or service not for its own sake but for what it produces

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13
Q

Diseconomies of scale

A

When an increase in the scale of production leads to higher LRAC

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14
Q

Economies of scale

A

When an increase in the scale of production leads to lower LRAC

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15
Q

Economies of scope

A

Economies arising when average costs fall as a firm increases output across a range of different products

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16
Q

External economies of scale

A

Economies of scale that arise from the expansion of the industry in which a firm is operating

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17
Q

Firm

A

An organisation that brings together factors of production in order to produce output

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18
Q

Fixed costs

A

Costs that do not vary with the level of output

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19
Q

Forward integration

A

A process under which a firm merges with a firm that is involved in a later part of the production process

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20
Q

Game theory

A

A method of modelling the strategic interaction between firms in an oligopoly

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21
Q

Horizontal integration

A

The result of a horizontal merger

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22
Q

Horizontal merger

A

A merger between two firms at the same stage of production in the same industry

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23
Q

Industry long-run supply curve (LRS)

A

Under perfect competition, the curve that is horizontal lat the minimum point of the long-run average cost curve

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24
Q

Internal economies of scale

A

Economies of scale that arise from the expansion of a firm

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25
Law of diminishing returns
If a firm increases its inputs of one factor of production while holding input of the other fixed, it will eventually derive diminishing marginal returns from the variable factor
26
Limit price
The highest price that an existing firm can set without enabling new firms to enter the market and make a profit
27
Long-run
The period over which the firm is able to vary the inputs of all its factors of production
28
Marginal cost
The cost of producing an additional unit of output
29
Marginal physical product of labour (MRPl)
The additional revenue received by a firm as it increases | output by using an additional unit of labour input
30
Market structure
The market environment within which firms operate
31
Minimum efficient scale
The level of output at which long-run average cost stops falling as output increases
32
Minimum wage
A government-set minimum wage rate below which firms are not allowed to pay
33
Monopolistic competition
A market that shares some characteristics of a monopoly and some of a perfect competition market
34
Monopoly
A form of market structure in which there is only one seller of a good or service
35
Monopsony
A market in which there is a single buyer of a good, service of factor of production
36
Multinational corporation
A firm that conducts its operations in a number of countries
37
'N'-firm concentration ratio
A measure of the market share of the largest 'n' firms in an industry
38
Nash equilibrium
A situation occurring within a game when each players chosen strategy maximises payoffs given the other player's choice, so that no player has an incentive to alter behaviour
39
Natural monopoly
Monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable
40
Non-pecuniary benefits
Benefits offered to workers by firms that are non financial in nature
41
Normal profit
Profit that covers the opportunity cost of capital and is just sufficient to keep a firm in the market
42
Oligopoly
A market with few sellers, in which each firm must take account of the behaviour and likely behaviour of rival firms in an industry
43
Oligopsony
A market in which there are few sellers of a good, service or factor of production
44
Overt collusion
A situation in which firms openly work together to agree on prices or market shares
45
Participation rate
The proportion of the population of working age who are in employment or seeking work
46
Perfect competition
A market structure that produces allocative and productive efficiency in long-run equilibrium
47
Perfect/first-degree price discrimination
A situation arising in a market whereby a monopoly firm is able to charge each consumer a different price
48
Predatory pricing
An anti -competitive strategy in which a firm sets price below average variable cost in an attempt to force a rival out of a market and achieve market dominance
49
Price taker
A firm that must accept whatever price is set in the market as a whole
50
Principal-agent (agency) problem
A problem arising from the conflict between the objectives of the principals and those of the agents who take decisions on their behalf
51
Private Finance Initiative (PFI)
A funding arrangement under which the private sector designs, builds, finances and operates asset and associated services for the public sector in return for an annual payment linked to its performance in delivering the service
52
Product differentiation
A strategy adopted by firms that marks their product as being different from their competitors'
53
Productive efficiency
Occurs when firms have chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs, thus producing at minimum LRAC
54
Public-private partnership (PPP)
An arrangement by which a government service or private business venture is funded an operated through a partnership of government and the private sector
55
Satisficing
Behaviour under which the managers of firms aim to produce satisfactory results for the firm
56
Short-run
The period over which a firm is free to vary the input of one of its factors of production, but faces fixed input of the other
57
Short-run supply curve
For a firm operating under perfect competition, the curve given by its short-run marginal cost curve above the price at which MC = SAVC For the industry, the horizontal sum of the supply curves of the individual industries
58
Static efficiency
Efficiency at a particular point in time
59
Sunk costs
Short-run costs that cannot be recovered if a firm closes down
60
Supernormal profits/Abnormal profits/Economic profits
Profits that exceed normal profits
61
Tacit collusion
A situation occurring when firms refrain from competing on price, but without communication of formal agreement between them
62
Third-degree price discrimination
A situation in which a firm is able to charge groups of consumers different prices for the same product
63
Variable costs
Costs that vary with the level of output
64
Vertical merger
A merger between two firms in the same industry, but at different stages of the production process
65
X-inneficiency
A situation arising when a firm is not operating at minimum cost