MICRO A2 Flashcards
1
Q
economic activity
A
actions that involve the production, distribution and consumption of goods and services
2
Q
short run
A
the time period when at least one factor of production is fixed in supply: usually capital and/or land
3
Q
fixed costs
A
costs that do not change in the short run with changes in output and must be paid irrespective of the level of production
4
Q
variable costs
A
costs that change with changes in output and tend to increase as output increases
5
Q
long run
A
the time period when all factor inputs are variable-the state of technology is assumed to be fixed
6
Q
the very long run
A
the state of technology is assumed to be variable and improve over time
7
Q
the law of diminishing average returns
A
as more of a variable factor is added to a given quantity of a fixed factor, output per unit of the variable factor will increase before eventually decreasing.
8
Q
the law of diminishing marginal returns
A
as more and more of a variable factor is added to a given quantity of a fixed factor, the addition to total product will increase, before eventually decreasing and then becoming negative.
9
Q
total cost
A
the total cost of producing a given output
10
Q
average cost
A
unit cost- TC/output
11
Q
marginal cost
A
the change in total cost resulting from changing output by one unit MC=change in TC/MP
12
Q
total product
A
the output generated from each combination of capital and labour
13
Q
marginal product
A
the additions to TP from employing an additional unit of labour
14
Q
average product
A
the amount of output per unit of a variable factor employed. AP=TP/variable factor
15
Q
increasing marginal returns
A
too much capital for labour
16
Q
decreasing marginal returns
A
workers still adding output but by less
17
Q
negative marginal returns
A
too many workers for amount of capital
18
Q
normal profit
A
the minimum level of profit required to keen an entrepreneur in their present occupation. AR=AC
19
Q
total revenue=
A
price x quantity. it is the sum received by a firm from selling its output
20
Q
marginal revenue
A
the addition to total revenue from selling one more unit of output
21
Q
average revenue
A
the total revenue from a particular level of output divided by that output
22
Q
when is total revenue maximised?
A
when PED=1 and MR=0
23
Q
sub-normal profit
A
when AC> AR therefore a loss is made. The entrepreneur will leave the industry to achieve better returns elsewhere
24
Q
supernormal profit
A
where AR>AC. this will encourage other firms to enter the market/industry
25
profit=
sales revenue - costs difference between revenue and costs
26
profit maximisation
MC=MR
27
market
any interactions between buyers and sellers for the trading of goods and services
28
monopoly
a sole supplier of a good of service
29
natural monopoly
a market where long-run average costs are lowest when output is produced by one firm
30
legal monopoly/ statuary monopoly
a market where a firm has a share of 25% or more
31
dominant monopoly
a market where a firm has a 40% share or more
32
absolute/pure monopoly
where one firm holds 100% of a market
33
efficiency
refers to the effectiveness with which an economy's scarce resources are used in making production decisions
34
productive efficiency
using the least possible amount of scarce resources to produce the maximum output. S o producing output at the lowest point of a firms AC curve
35
allocative efficiency
occurs where the consumer valuation of the last unity produced is equal to the economic cost of producing that unit- thus the right quantity of resources has been allocated to that particular use. Price =MC
36
X-inefficiency
the difference between actual costs and attainable costs. AC is higher than it needs to be as there are no incentives to cut costs.
37
barriers to entry
obstacles to new firms entering a market
38
barriers to exit
obstacles to firms leaving a market
39
sunk costs
costs incurred by a firm that it cannot recover should it leave the market
40
economies of scale
a reduction in LRAC resulting from an increase in the scale of production
41
internal EOS
EOS that occur within the firm as a result of its growth and are specific to that firm only eg purchasing eos, selling eos, technical eos, managerial eos, financial eos, risk-bearing eos
42
external EOS
savings in costs available to firms arising from the growth of an industry as a whole, eg tourism, development of ancillary industries, specialisation, good reputation, improved infrastructure
43
diseconomies of scale
an increase in LRAC caused by an increase in the scale of production
44
internal DOS
DOS experienced by a firm caused by its own growth eg management control, industrial relations
45
external DOS
DOS resulting from the growth of the industry, affecting firms within that industry eg firms concentrated in the sane area means increased competition of resources which drives up their price as well as higher levels of pollution and traffic congestion. Local labour shortages
46
constant returns to scale
LRAC remaining unchanged when the scale of production increases
47
increasing returns to scale
when the scale of operations increases and output increases by a greater proporiton
48
minimum efficient scale
the lowest level of output at which full advantage can be taken of EOS
49
absolute poverty
the inability to purchase the basic necessities of life. The World Bank define this as living on less than US$1.90 per day
50
backward-sloping labour supply curve
a labour supply curve showing the substitution effect dominating at low wages and the income effect dominating at high wages
51
Collusion
where firms tacitly or otherwise agree to not compete on prices, service provision and other matters that might adversely affect mutual well-being
52
concentration ratio
the proportion of the total market shared between the nth largest firms
53
contestability
the extent to which barriers to entry and exit in a market are free and costless
54
contestable market
a market in which there are no barriers to entry or exit and the costs facing incumbent firms and new firms are equal
55
costs
the value of inputs
56
cost-benefit analysis
a technique used for assessing the viability of a project, taking into account all of the effects over time
57
cross-subsidisation
a business practice where revenue from profitable activities is used to support loss-making ones
58
dependency ratio
proportion of the population who are too young, too old or too sick to work and so who are reliant on the output of those who are working
59
derived demand
demand that depends upon the final output that is produced, or on the demand for another item
60
disequilibrium unemployment
unemployment caused by the AS of labour exceeding the AD of labour
61
dynamic efficiency
efficiency in terms of developing and introducing new production techniques and new products, whereby the units costs are lowered over time
62
earnings
wages plus over time pay, bonuses and commission
63
economic rent
the amount a worker earns over and above their transfer earnings (the minimum payment required to keep an individual in their present occupation) and therefore represents a surplus paid to that worker.
64
economically inactive
working age people who are neither in employment, nor unemployed, and so are not part of the labour force
65
elasticity of supply of labour
the responsiveness of the supply of labour to a change in the wage rate
66
employment rate
the proportion of working-age people who are in work
67
equilibrium U
U that exists when the labour market is in equilibrium, ASL=ADL
68
excess capacity
a consequence of firms producing at above the minimum point on the AC curve
69
financial economies
the cost savings that large firms may receive when borrowing money
70
flexible labour market
a labour market that adjusts quickly and smoothly to changes in the demand for and supply of labour
71
forecast
a future estimate usually based on past information
72
franchise
the outcome of a competitive system to bid for the provision of services
73
Game theory
a theory of how decision makers are influenced by the actions and reactions of others
74
geographical immobility of labour
barriers to the movement of workers between different areas
75
gini coefficient
used to make international comparisons of income inequality. It is found using the Lorenz curve
76
growth maxmisation
the objective of increasing the size of the firm as much as possible
77
hedging
business strategy that limits the risk that losses are made from changes in the price of currencies or commodities
78
homeworking
working either at home or in different places away from the central office, production or distribution facilities, using the home as a base
79
human capital
the knowledge and skills of the labour force
80
hypothecation
a situation where revenue from a tax is directly allocated to some other purpose
81
income effect of a wage change
the effect on the supply of labour caused by the change in the ability to buy leisure
82
incumbent firms
firms already in the market
83
interdependent
where the actions of one firm provoke counter-action by others
84
keynesian economists
economists who believe that market failures will result in price and quantity rigidities such that the economy's equilibrium output in the long run may be less than its potential output
85
kinked demand curve
a demand curve made up of two parts; it suggests oligopolists follow each others' price reductions, but not price rises
86
labour force
all those people of working age who are in employment or actively seeking work
87
licensing arrangements
an agreement that ideas and technology 'owned' by one company can be used by another, often for a charge
88
limit pricing
setting a price low to discourage the entry of new firms into the market
89
LRAS curve
the relationship between total S and the price level in the LR. the LRAS curve represents the maximum possible output for the whole economy- its potential output
90
LR economic growth
the rate at which the economy's potential output could grow as a result of changes in the economy's capacity to produce goods and services
91
Lorenz curve
a diagram commonly used to illustrate income or wealth distribution
92
managerial economies
savings in LRAC due to the specialisation of management
93
marginal product of labour (MPL)
the change in output that results from employing one more worker
94
marginal revenue product (MRP)
the change in a firm's revenue resulting from employing one more worker
95
market concentration ratio
the percentage share of the market of a given number of firms
96
market structure
the characteristics of a market
97
non-price competition
competition between firms on the basis of, for example, branding, customer service, location, range of products, advertising
98
occupational immobility of labour
barriers to workers changing occupations
99
occupational segregation
the dominance of an occupation by one gender
100
oligopoly
a market structure dominated by a few large firms
101
oligopsonist
one of a few dominant buyers
102
part-time workers
people working less than 30 hours a week
103
perfect competition
a market structure with many buyers and sellers, free entry and exit and an identical product
104
poverty
when income is below the level that would allow someone to enjoy some agreed minimum standard of living. The World Bank defines 'extreme poverty' as living on less than US$1 per day at PPP and 'moderate poverty' as living on less than US$2 per day at PPP
105
predatory pricing
setting price low with the aim of forcing rivals out of the market
106
price discrimination
where a monopolist charges different prices for the same product in different markets
107
price maker
a firm that influences price when it changes it output
108
price stability
when the general price level does not change or if it does change the rate of change is low enough not to significantly affect the decisions of firms and households
109
price taker
a firm in a competitive market that has to accept the market price/ that has no influence on price
110
product differentiation
where there are minor variations in the types of products on offer
111
profit margin
the difference between a firm's revenue and costs expressed as a percentage of revenue
112
profit satisficing
where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit
113
purchasing economies
reduced unit costs due to the bulk buying of inputs into a business
114
relative poverty
a situation of being poor relative to others
115
sales maximisation
an objective that involves the maximisation of the volume of sales
116
sales revenue maximisation
the objective of achieving as high a total revenue as possible
117
shadow price
a relative price that is proportional to the opportunist cost for the economy
118
SRAS
shows the level of production for the economy at a given price level, assuming labour costs and other factor input costs are unchanged
119
spare capacity
exists when firms in the economy are capable of producing more output than they are actually producing
120
stakeholders
people affected by the activities of a firm
121
substitution effect of a wage rise
the effect on the supply of labour caused by a change in the opportunity cost of leisure
122
sunk costs
costs incurred by a firm that it cannot recover should it leave the market
123
tax wedge
the gap between what employers pay for labour and what workers receive in disposable income
124
technical economies
increased capacity or a technological development that results in lower LRAC
125
teleworking
working using a telephone and a computer at home, in an internet cafe, or a train or plane
126
temporary work
casual work, seasonal work, working for employment agencies, fixed period contract work
127
transfer earnings
the minimum payment required to keep a worker in their current occupation; it represents an opportunity cost because it is the amount that a worker earn in their next best alternative employment. if their wage falls below this level, they will transfer to another job
128
unemployment
arises when someone is out of work and actively seeking employment
129
unit labour costs
the costs of labour per unit of output (including social costs of employing labour as well as the wage costs)
130
utility maximisation
the aim of trying to achieve as much satisfaction as possible
131
x ineffeciency
the difference between actual costs and attainable costs
