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economics a2 > micro > Flashcards

micro Flashcards

1
Q

short run

A

period of time where at least one factor of production is fixed

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2
Q

long run

A

period of time where all factors of production are variable

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3
Q

law of diminishing marginal returns

A

short term law that says as a variable factor of production is added to a fixed factor eventually both the marginal and and average returns for the variable factor will begin to fall after rising initially

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4
Q

assumptions of the law of diminishing marginal returns

A

short run

each unit of input is identical

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5
Q

marginal utility

A

the additional welfare gained from consuming one extra unit of a good

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6
Q

LRAC curve

A

made up of the points of productive efficiency of the SRAC curves

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7
Q

what do the SRAC curves represent in the cost curve envelope

A

each SRAC curve represents a new premises, premises are opened because the firm is operating beyond its productive efficiency at a particular output, this increases productive efficiency but takes time

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8
Q

when is utility maximised

A

when the marginal is 0

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9
Q

law of diminishing marginal utility

A

marginal utility falls with consumption

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10
Q

rational behaviour

A

acting in pursuit of self interest/ attempting to maximise welfare, satisfaction or utility gained from goods or services

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11
Q

welfare

A

optimal allocation of resources and goods
for a country- the level of prosperity and quality of living standards inn economy
needs a value judgement

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12
Q

utility

A

satisfaction or economic welfare welfare an individual gains from consuming a good or service

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13
Q

increasing returns to scale

A

where an increase in factor inputs leads to a more than proportional increase in outputs

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14
Q

decreasing returns to scale

A

where an increase in factor inputs leads to a less than proportional increase in factor outputs

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15
Q

MES

A

minimum efficient scale, first point of output at which productive efficiency is achieved

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16
Q

invention

A

original creation

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17
Q

innovation

A

upgrade/ improved version

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18
Q

technological change

A

a term used to describe the overall effect of invention and innovation and the diffusion of technology in the economy (long run concept)

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19
Q

effects of technological change on methods of production

A

automation, move from labour to capital intensive, mass production, mechanisation, specialisation, move LRAC down

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20
Q

static efficiency

A

productive + allocative efficiency

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21
Q

dynamic efficiency

A

long run- leading to the development of new products and more efficient processes that improve productive efficiency (technological change)

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22
Q

technological change can lead to

A

new products, new markets, destruction of existing markets

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23
Q

creative destruction

A

capitalism evolving and renewing itself over time through new technologies and innovations replacing old ones

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24
Q

behavioural economics

A

method of economic analysis that applies psychological insights into human behaviour to explain how individuals make choices

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25
Q

bounded rationality

A

when making decisions an individuals rationality is limited by the information they have , their minds and the time they have

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26
Q

satificing

A

achieving a satisfactory outcome rather than the best possible outcome

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27
Q

bounded self control

A

limited self control in which individuals lack the self control to act in what they see as their best interests

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28
Q

cognitive bias

A

mistake in reasoning as a result of holding onto ones beliefs regardless of contrary information

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29
Q

social norms

A

from or patterns of behaviour considered acceptable by a society or group

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30
Q

rules of thumb

A

a rough and practical method or procedure that can be easily applied to decision making

31
Q

anchoring

A

tendency to rely too heavily on the first piece of info offered

32
Q

availability

A

when individuals make judgements about that future based on how easy it is to recall similar events

33
Q

marginal

A

difference ti the total made by an additional unit of input

34
Q

normal profit

A

the minimum profit a firm must make to stay in business but is not enough to attract new firms to the market

35
Q

costs in economics include

A

opportunity cost

36
Q

supernormal profit

A

profit over and above normal profit

37
Q

role of profit

A

innovation
signal of economies health, worker incentives, shareholder incentives, resource allocation, economic efficiency, reward for rest and innovation, source of business finance

38
Q

information gap

A

when people do not process or ignore relevant information leading to personal decisions

39
Q

asymmetric information

A

when one party to a market transaction has less information relevant to the exchange than the other

40
Q

choice architecture

A

a framework setting out different ways in which choices are presented to customers and the impact that presentation on consumer decision making

41
Q

framing

A

how something is presented influences the choices people make

42
Q

nudges

A

try to alter peoples behaviour in a predictable way without forbidding options or significantly changing economic incentives

43
Q

default choice

A

an option that is selected automatically unless an alternative is specified

44
Q

mandated choices

A

people are required by law to make a decision

45
Q

restricted choice

A

offering people a limited number of choices so that people aren’t not overwhelmed by the complexity

46
Q

entry barriers

A

obstacles that make it difficult for a new firm to enter the market

47
Q

exit barriers

A

obstacles that make it difficult for an established firm to leave the market

48
Q

natural barriers

A

barriers that result from inherent features of the industry such as economies of scale

49
Q

sunk costs

A

costs that have already been incurred and and not recovered (i.e. advertising)

50
Q

artificial barriers

A

barriers erected by the firms themselves e.g. : patents, predatory pricing, line dominating, first move advantage, advertising, limit pricing

51
Q

divorce of ownership and control

A

the owners and those who manage the firm are different entities with different objectives

52
Q

principal agent problem

A

the principal (owner) oppoints an agent (director/manager) to perform tasks on their behalf, But their incentives differ

53
Q

perfect competition features

A

homogenous good, firms are price takers, perfect knowledge, freedom of entry and exit, large number of buyers, completely mobile factors of production, ability to buy and sell as much are you want at the ruling market price

54
Q

efficiency in perfect competition

A

perfectly competitive firms are allocatively and productively efficient this is a side effect of being a short run profit maximiser and producing at mc=mr. They can never be dynamically efficient->no means

55
Q

allocative efficiency

A

p=mc

56
Q

features of a monopoly

A

one firm, price makers, complete barriers to entry, imperfect knowledge, immobile factors of production

57
Q

sales maximisation

A

ac=ar

58
Q

revenue maximisation

A

mr=0

59
Q

csr occurs at

A

any point before profit maximisation

60
Q

consumer surplus

A

difference between what consumers are willing to pay and the market price (a measure of economic welfare enjoyed by consumers, surplus utility received above the price paid for a good)

61
Q

producer surplus

A

a measure of the economic welfare enjoyed by firms or producers the difference between the price a firm charges and the minimum price they would be able to charge

62
Q

deadweight loss

A

name given to the loss of economic welfare when the maximum attainable level of total welfare is not achieved (can be applied to externalities and monopolies)

63
Q

price discrimination

A

charging different prices to different consumers for the same good or service with the prices based on different willingnesses to pay.

64
Q

conditions necessary for price discrimination

A

ability to segment consumers, different customers must have different PeDs, ability to prevent resale, need to be a price maker

65
Q

perfect price discrimination

A

when the discriminating firm can charge a separate price to each individual customer (there is no consumer surplus)

66
Q

second degree price discrimination

A

charging a different price for different quantities (e.g. discounts for bulk purchases)

67
Q

third degree price discrimination

A

charging different prices to separate customer groups with different elasticises of demand

68
Q

oligopoly

A

a few large firms have a majority of the market share

69
Q

features of an oligopoly

A

high barriers to entry, supply concentrated in the hands of few firms, firms must be interdependent, non price competition

70
Q

monopolistic competition

A

a market structure in which firms have many competitors but each sell a slightly different product

71
Q

features ofmonopolistic competition

A

large number of buyers and sellers all acting independently, low concentration ratio, low/no barriers to entry in the long run, differentiated goods, lots f switching, producers have some control over price, information widely spread but not perfect

72
Q

contestable market features

A

number of firms varies from one to many with no one firm having significant market share, freedom and entry and exit, firms compete and do not collude, perfect knowledge

73
Q

how to encourage contestability

A

reduce barriers to entry(deregulation) subsidies smaller firms, nature of technology

74
Q

hit and run entry

A

where when res firms enter the industry and take some of the supernormal profits of the encumbents then exit. This encourages large firms to behave competitively

economics a2 (2 decks)

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