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Economics A2 > MICRO A2 > Flashcards

MICRO A2 Flashcards

1
Q

economic activity

A

actions that involve the production, distribution and consumption of goods and services

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2
Q

short run

A

the time period when at least one factor of production is fixed in supply: usually capital and/or land

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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

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4
Q

variable costs

A

costs that change with changes in output and tend to increase as output increases

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5
Q

long run

A

the time period when all factor inputs are variable-the state of technology is assumed to be fixed

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6
Q

the very long run

A

the state of technology is assumed to be variable and improve over time

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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.

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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.

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9
Q

total cost

A

the total cost of producing a given output

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10
Q

average cost

A

unit cost- TC/output

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11
Q

marginal cost

A

the change in total cost resulting from changing output by one unit MC=change in TC/MP

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12
Q

total product

A

the output generated from each combination of capital and labour

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13
Q

marginal product

A

the additions to TP from employing an additional unit of labour

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14
Q

average product

A

the amount of output per unit of a variable factor employed. AP=TP/variable factor

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15
Q

increasing marginal returns

A

too much capital for labour

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16
Q

decreasing marginal returns

A

workers still adding output but by less

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17
Q

negative marginal returns

A

too many workers for amount of capital

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18
Q

normal profit

A

the minimum level of profit required to keen an entrepreneur in their present occupation. AR=AC

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19
Q

total revenue=

A

price x quantity. it is the sum received by a firm from selling its output

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20
Q

marginal revenue

A

the addition to total revenue from selling one more unit of output

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21
Q

average revenue

A

the total revenue from a particular level of output divided by that output

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22
Q

when is total revenue maximised?

A

when PED=1 and MR=0

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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

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24
Q

supernormal profit

A

where AR>AC. this will encourage other firms to enter the market/industry

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25
Q

profit=

A

sales revenue - costs difference between revenue and costs

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26
Q

profit maximisation

A

MC=MR

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27
Q

market

A

any interactions between buyers and sellers for the trading of goods and services

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28
Q

monopoly

A

a sole supplier of a good of service

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29
Q

natural monopoly

A

a market where long-run average costs are lowest when output is produced by one firm

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30
Q

legal monopoly/ statuary monopoly

A

a market where a firm has a share of 25% or more

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31
Q

dominant monopoly

A

a market where a firm has a 40% share or more

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32
Q

absolute/pure monopoly

A

where one firm holds 100% of a market

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33
Q

efficiency

A

refers to the effectiveness with which an economy’s scarce resources are used in making production decisions

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34
Q

productive efficiency

A

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

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35
Q

allocative efficiency

A

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

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36
Q

X-inefficiency

A

the difference between actual costs and attainable costs. AC is higher than it needs to be as there are no incentives to cut costs.

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37
Q

barriers to entry

A

obstacles to new firms entering a market

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38
Q

barriers to exit

A

obstacles to firms leaving a market

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39
Q

sunk costs

A

costs incurred by a firm that it cannot recover should it leave the market

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40
Q

economies of scale

A

a reduction in LRAC resulting from an increase in the scale of production

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41
Q

internal EOS

A

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

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42
Q

external EOS

A

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

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43
Q

diseconomies of scale

A

an increase in LRAC caused by an increase in the scale of production

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44
Q

internal DOS

A

DOS experienced by a firm caused by its own growth eg management control, industrial relations

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45
Q

external DOS

A

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

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46
Q

constant returns to scale

A

LRAC remaining unchanged when the scale of production increases

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47
Q

increasing returns to scale

A

when the scale of operations increases and output increases by a greater proporiton

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48
Q

minimum efficient scale

A

the lowest level of output at which full advantage can be taken of EOS

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49
Q

absolute poverty

A

the inability to purchase the basic necessities of life. The World Bank define this as living on less than US$1.90 per day

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50
Q

backward-sloping labour supply curve

A

a labour supply curve showing the substitution effect dominating at low wages and the income effect dominating at high wages

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51
Q

Collusion

A

where firms tacitly or otherwise agree to not compete on prices, service provision and other matters that might adversely affect mutual well-being

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52
Q

concentration ratio

A

the proportion of the total market shared between the nth largest firms

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53
Q

contestability

A

the extent to which barriers to entry and exit in a market are free and costless

54
Q

contestable market

A

a market in which there are no barriers to entry or exit and the costs facing incumbent firms and new firms are equal

55
Q

costs

A

the value of inputs

56
Q

cost-benefit analysis

A

a technique used for assessing the viability of a project, taking into account all of the effects over time

57
Q

cross-subsidisation

A

a business practice where revenue from profitable activities is used to support loss-making ones

58
Q

dependency ratio

A

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
Q

derived demand

A

demand that depends upon the final output that is produced, or on the demand for another item

60
Q

disequilibrium unemployment

A

unemployment caused by the AS of labour exceeding the AD of labour

61
Q

dynamic efficiency

A

efficiency in terms of developing and introducing new production techniques and new products, whereby the units costs are lowered over time

62
Q

earnings

A

wages plus over time pay, bonuses and commission

63
Q

economic rent

A

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
Q

economically inactive

A

working age people who are neither in employment, nor unemployed, and so are not part of the labour force

65
Q

elasticity of supply of labour

A

the responsiveness of the supply of labour to a change in the wage rate

66
Q

employment rate

A

the proportion of working-age people who are in work

67
Q

equilibrium U

A

U that exists when the labour market is in equilibrium, ASL=ADL

68
Q

excess capacity

A

a consequence of firms producing at above the minimum point on the AC curve

69
Q

financial economies

A

the cost savings that large firms may receive when borrowing money

70
Q

flexible labour market

A

a labour market that adjusts quickly and smoothly to changes in the demand for and supply of labour

71
Q

forecast

A

a future estimate usually based on past information

72
Q

franchise

A

the outcome of a competitive system to bid for the provision of services

73
Q

Game theory

A

a theory of how decision makers are influenced by the actions and reactions of others

74
Q

geographical immobility of labour

A

barriers to the movement of workers between different areas

75
Q

gini coefficient

A

used to make international comparisons of income inequality. It is found using the Lorenz curve

76
Q

growth maxmisation

A

the objective of increasing the size of the firm as much as possible

77
Q

hedging

A

business strategy that limits the risk that losses are made from changes in the price of currencies or commodities

78
Q

homeworking

A

working either at home or in different places away from the central office, production or distribution facilities, using the home as a base

79
Q

human capital

A

the knowledge and skills of the labour force

80
Q

hypothecation

A

a situation where revenue from a tax is directly allocated to some other purpose

81
Q

income effect of a wage change

A

the effect on the supply of labour caused by the change in the ability to buy leisure

82
Q

incumbent firms

A

firms already in the market

83
Q

interdependent

A

where the actions of one firm provoke counter-action by others

84
Q

keynesian economists

A

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
Q

kinked demand curve

A

a demand curve made up of two parts; it suggests oligopolists follow each others’ price reductions, but not price rises

86
Q

labour force

A

all those people of working age who are in employment or actively seeking work

87
Q

licensing arrangements

A

an agreement that ideas and technology ‘owned’ by one company can be used by another, often for a charge

88
Q

limit pricing

A

setting a price low to discourage the entry of new firms into the market

89
Q

LRAS curve

A

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
Q

LR economic growth

A

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
Q

Lorenz curve

A

a diagram commonly used to illustrate income or wealth distribution

92
Q

managerial economies

A

savings in LRAC due to the specialisation of management

93
Q

marginal product of labour (MPL)

A

the change in output that results from employing one more worker

94
Q

marginal revenue product (MRP)

A

the change in a firm’s revenue resulting from employing one more worker

95
Q

market concentration ratio

A

the percentage share of the market of a given number of firms

96
Q

market structure

A

the characteristics of a market

97
Q

non-price competition

A

competition between firms on the basis of, for example, branding, customer service, location, range of products, advertising

98
Q

occupational immobility of labour

A

barriers to workers changing occupations

99
Q

occupational segregation

A

the dominance of an occupation by one gender

100
Q

oligopoly

A

a market structure dominated by a few large firms

101
Q

oligopsonist

A

one of a few dominant buyers

102
Q

part-time workers

A

people working less than 30 hours a week

103
Q

perfect competition

A

a market structure with many buyers and sellers, free entry and exit and an identical product

104
Q

poverty

A

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
Q

predatory pricing

A

setting price low with the aim of forcing rivals out of the market

106
Q

price discrimination

A

where a monopolist charges different prices for the same product in different markets

107
Q

price maker

A

a firm that influences price when it changes it output

108
Q

price stability

A

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
Q

price taker

A

a firm in a competitive market that has to accept the market price/ that has no influence on price

110
Q

product differentiation

A

where there are minor variations in the types of products on offer

111
Q

profit margin

A

the difference between a firm’s revenue and costs expressed as a percentage of revenue

112
Q

profit satisficing

A

where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profit

113
Q

purchasing economies

A

reduced unit costs due to the bulk buying of inputs into a business

114
Q

relative poverty

A

a situation of being poor relative to others

115
Q

sales maximisation

A

an objective that involves the maximisation of the volume of sales

116
Q

sales revenue maximisation

A

the objective of achieving as high a total revenue as possible

117
Q

shadow price

A

a relative price that is proportional to the opportunist cost for the economy

118
Q

SRAS

A

shows the level of production for the economy at a given price level, assuming labour costs and other factor input costs are unchanged

119
Q

spare capacity

A

exists when firms in the economy are capable of producing more output than they are actually producing

120
Q

stakeholders

A

people affected by the activities of a firm

121
Q

substitution effect of a wage rise

A

the effect on the supply of labour caused by a change in the opportunity cost of leisure

122
Q

sunk costs

A

costs incurred by a firm that it cannot recover should it leave the market

123
Q

tax wedge

A

the gap between what employers pay for labour and what workers receive in disposable income

124
Q

technical economies

A

increased capacity or a technological development that results in lower LRAC

125
Q

teleworking

A

working using a telephone and a computer at home, in an internet cafe, or a train or plane

126
Q

temporary work

A

casual work, seasonal work, working for employment agencies, fixed period contract work

127
Q

transfer earnings

A

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
Q

unemployment

A

arises when someone is out of work and actively seeking employment

129
Q

unit labour costs

A

the costs of labour per unit of output (including social costs of employing labour as well as the wage costs)

130
Q

utility maximisation

A

the aim of trying to achieve as much satisfaction as possible

131
Q

x ineffeciency

A

the difference between actual costs and attainable costs

Economics A2 (1 decks)

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