Key Words Flashcards
Normal good
Increase in consumer incomes leads to an increase in QD. YED>0
Inferior good
Increase in consumer incomes leads to a decrease in QD. Negative YED.
e.g. Tesco value/ Charity shop items.
Luxury good
Normal good with positive YED> 1, as income rises consumers spend proportionally more on the good.
e.g. Jewellery
Consumer surplus
Difference between the price that consumers pay the price that they would be willing to pay.
Producer surplus
Difference between the price suppliers receives and the price that they would have been willing to pay.
Cartel
Agreement between firms in a market on price and output with the intention of maximising their joint profits.
Merger
Two or more firms become integrated to form one under joint ownership.
Divorce of ownership and control
Owner of business relinquishes controls over decision making power to a board of directors, who are better equipped.
Principal-agent problem
Conflict of interest that arises when the principal hires the agent to perform duties for them that are in the interest of the principal, not the agent.
Public sector organisations
Owned and operated by the government.
Private sector organisation
Owned and run by individuals or groups of individuals.
Not-for-profit
Aim to maximise social welfare.
Takeover
On firm gains control over another and becomes the owner. (51% of shares)
Horizontal integration
Two firms at the same level of production and industry integrate.
e.g. Sainsbury’s and Asda
Forward vertical integration
Firm buys another firm in the same industry forward in the supply chain.
e.g. Amazon and Whole Foods
