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Economics > Microeconomics > Flashcards

Microeconomics Flashcards

1
Q

What is Economics?

A

Economics is a social science (studies society and relationships of individuals within that society), studies the economic behaviour between groups and individuals

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2
Q

Draw the flowchart of scientific methodology?

A

-Observing consumer behaviour in the market place
-Forming a hypothesis to explain how consumers spend their money
-Developing predictions from the hypothesis
-Using evidence to test predictions
+Further tests>Concluding that the evidence supports the hypothesis, which now becomes the theory of demand
-New/Revised hypothesis>Evidence doesn’t support predictions, hypothesis is amended/rejected

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3
Q

What is a theory?

A

A hypothesis which has been tested and passed

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4
Q

What is a normative statement?

A

A statement that includes a value judgement and cannot be refuted just by looking at the evidence

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5
Q

What is a positive statement?

A

A statement of fact that can be scientifically tested to see if it is correct or incorrect

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6
Q

What is a value Judgement?

A

Whether something is desirable or not

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7
Q

What is a need?

A

Something that is necessary for human survival e.g. food, clothing, warmth, shelter

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8
Q

What is a want?

A

Something that is desirable, such as fashionable clothing, but is not necessary for human survival

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9
Q

What is the purpose of economic activity?

A

The production of goods and services to satisfy needs and wants

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10
Q

What is economic Welfare?

A

The economic well being of an individual or group within society, or an economy
Satisfying peoples needs and wants means improving economic welfare

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11
Q

What is Production?

A

A process, or set of processes, that converts inputs into output of goods

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12
Q

What is a capital good?

A

A good which is used in the production of other goods or services. Also known as a producer good.

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13
Q

What is a consumer good?

A

A good which is consumed by individuals or households to satisfy their needs/wants

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14
Q

What are the factors of production? and explain them

A

Inputs into the production process, such as land (Goods like minerals, the land itself and all the resources taken from the world. e.g. Oil and fish), labour (Potential Workforce, Not just physical people but skills, abilities and intelligence), capital (Goods used to make other goods and services that can be sold e.g. machinery, premises, equipment etc) and enterprise (risk takers, brings together factors of production)

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15
Q

What is a finite resource?

A

A resource, such as oil, which is scarce and runs out as it’s used. Also known as a non-renewable source

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16
Q

What is a renewable resource?

A

A resource such as timber, that with careful management can be renewed as it’s used

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17
Q

What is the fundamental economic problem?

A

How best to make decisions about the allocation of scarce resources among competing uses so as to improve and maximise human happiness and welfare

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18
Q

What is Scarcity?

A

Results from the fact that people have unlimited wants but resources to meet those wants are limited. People would like to consume more goods and services than the economy is able to produce with its limited resources

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19
Q

What is opportunity cost?

A

The cost of giving up the best alternative

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20
Q

What is a production possibility frontier?

A

A curve depicting the various combinations of two products (or types of products) that can be produced when all the available resources are fully and efficiently employed

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21
Q

What causes the PPF to shift outwards?

A

Increase in available resources/ Increase in factors of production
Increase in GDP
Rise in efficiency (productivity), meaning more output can be produced from given resources
Technology
Education and training
Increased labour supply

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22
Q

What causes the PPF to have an inward shift?

A

Decrease in factors of production e.g. Natural disasters, economic recession

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23
Q

What is meant by choice?

A

Choosing between alternatives when making a decision on how to use scarce resources

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24
Q

What is resource allocation?

A

The process through which the available factors of production are assigned to produce different goods and services, e.g. how many of the societies economic resources are devoted to supplying direness products such as food, cars, healthcare and defence

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25
Q

What is Productive efficiency?

A

Occurs when it is impossible to produce more of one good without producing less of another. For a firm it occurs when the average total cost of production is minimised

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26
Q

What does it mean when a point is inside the PPF curve?

A

The point is productively inefficient- output is not maximised from available inputs.

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27
Q

What is allocative efficiency?

A

Occurs when the available economic resources are used to produce a combination of goods and services that best matches peoples tastes and preferences

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28
Q

What is a market economy?

A

An economic system in which goods and services are purchased through the price mechanism in a system of markets

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29
Q

What is privatisation?

A

Involves the sale of state-owned assets such as industrialised industries to private owners

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30
Q

What is Marketisation?

A

Prices charged for goods and services the state previously provided free of charge

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31
Q

What is Demand?

A

The quantity of a good or service that consumers are willing and able to buy at a given period of time

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32
Q

What is Market Demand?

A

The quantity of a good or service that all the consumers in a market are willing and able to buy at different market prices (different from individual demand)

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33
Q

What is it called when there is an increase in price along the demand curve?

A

Contraction

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34
Q

What is it called when there is an decrease in price along the demand curve?

A

Extension

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35
Q

What is specialisation?

A

Concentration on a particular part of the production process, or the production of a particular good or service that is likely to lead to an increase in productivity

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36
Q

Why do we specialise?

A
  • Highly skilled workforce
  • Climate
  • Access to resources
  • Natural Ability
  • Concentration
  • No time wasted swapping in-between tasks
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37
Q

What is the division of labour?

A

Breaking the production process down into a sequence of tasks , with workers assigned a particular task

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38
Q

What was Adam Smith’s statement about the division of labour?

A

1 Worker could make 20 pins if all processes were completed by himself, whilst 10 workers specialising in various tasks could make 48,000 pins

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39
Q

What are the benefits for the division of labour?

A

-Increased Aptitude
Repetition of tasks leads them to be done more expertly
-Time saving
Less time spent switching between tasks, less training
-Working to strengths
Allows workers to do what they are best at
-Use of capital equipment
As tasks are sub-divided it becomes worthwhile to use machinery

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40
Q

What is development of trade?

A

Effective ways of trade (buying and selling of goods and services) and exchange (give something in return for something else- money is a medium of exchange) is necessary if firms are to benefit from greater specialisation and the division of labour.

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41
Q

What does successful trading require?

A
  • Markets to enable buyers and sellers to meet
  • Stability and the development of institutions to resolve differences that might arise
  • Effective communications between buyers and sellers
  • Efficient and relatively cheap transport
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42
Q

What is productivity?

A

Output for a given factor of production over a period of time?

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43
Q

What is labour productivity?

A

Output per worker

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44
Q

What is capital productivity?

A

Output per unit of capital

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45
Q

How is productivity calculated?

A

Number of units of labour

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46
Q

How is productivity improved?

A
  • Financial Incentives
  • Organisational changes
  • Technological improvements
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47
Q

What is the productivity Gap?

A

The difference between labour productivity in the UK and in other developed economies

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48
Q

What factors cause an average of high productivity?

A

-Lower average costs
lower cost is passed onto consumers, causing the expansion of demand, leading to a higher output and an increase in employment
-Improved competitiveness in international market
Develop a competitive advantage in markets where there is strong price competition from overseas suppliers
-Higher profits
Greater profits can be reinvested into the company in order for the business to grow
-Higher real wages
Firms able to offer higher wages when labour force becomes more efficient

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49
Q

What is supply?

A

The quantity of a good or service that a producer is willing and able to suppliant the market at a given price in a given time period

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50
Q

What is equilibrium?

A

A state of rest or balance between opposing forces

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51
Q

What is disequilibrium?

A

A situation in a market when this is excess supply or excess demand

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52
Q

Why are house prices rising in terms of demand? (4 Factors)

A
  • Rising Incomes
  • Increased Population
  • Low Interest Rates
  • More Buying than Renting
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53
Q

Why are house prices rising in terms of supply? (5 Factors)

A
  • Less land
  • Government regulations
  • Decline in house building
  • Skills shortages
  • Stamp Duty (tax)
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54
Q

What is price mechanism?

A

Interaction between demand and supply to reach an equilibrium price and quantity in a market so that all demand is satisfied and all supply is sold- the best allocation of limited resources is achieved

Price mechanism alerts the demanders and suppliers of whats changed- leads the market to the best allocation of resources

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55
Q

What is a free market?

A

A market with no government intervention

Prices are determined by unrestricted competition by privately owned businesses

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56
Q

What are the arguments against government intervention?

A
  • Dont have to follow government education curriculum
  • Money can be spent elsewhere
  • Better employment (trade)
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57
Q

What are the arguments for government intervention?

A
  • Expense
  • A range of different options
  • Better facilities
  • School can be selective with students
  • Unequal opportunities
  • Increased crime rate
  • Population increase
  • Increase in the gap between rich and poor
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58
Q

What are the 3 functions of price mechanism?

A

The signalling function
The Rationing function
The incentive function

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59
Q

What is the signalling function?

A

Market prices adjust to demonstrate were resources are required, If prices rise due to high demand, it is a signal to suppliers to expand their production to meet demand

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60
Q

What is the rationing function?

A

Ration scarce resources when demand in a market outstrips supply
The prices increase so there are less willing and able to buy- so the demand is equalled

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61
Q

What is a transmission of preference?

A

Consumers are able through their expression of preferences to send important information to producers about the changing nature of our needs/wants

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62
Q

What is the incentive function?

A

Profit incentives, maximise utility

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63
Q

What is price elasticity of demand?

A

Measures the extent to which the demand for a good changes in response to a change in the price of that good

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64
Q

How do you calculate PeD?

A

% change in price

(ignore minus numbers)

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65
Q

What dies each value of PeD mean?

A 
0 = Perfectly inelastic
0-1 = Inelastic
1 = Unitary PeD
\+1 = Elastic
Infinity = Perfectly elastic

Elastic- Most Tax absorbed by the firm
Inelastic- Tax gets passed onto the consumer

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66
Q

What are the factors that determine PeD?

A
  • Number of close substitutes for a good and the uniqueness of the product in the market
  • Product /service is a luxury or necessity
  • The of a consumers income allocated to consumers spending on the good
  • The time period allowed following a price change
  • Peak and off demand
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67
Q

Draw the 5 different graphs for PeD.

A 
Perfectly Elastic
Elastic
Perfectly inelastic
Inelastic
Unitary Elastic
68
Q

What is income elasticity of demand (YeD)?

A

Measures the relationship between a change in quantity demanded and a change in real income

+ Inferior good
- Normal good
>1 Luxury

69
Q

How is YeD Calculated?

A

% change in income

70
Q

What an example of a normal luxury?

A

Air travel
Fine wines
Designer clothes

71
Q

What an example of a normal Necessity?

A

Veg
Juice
Utilities

72
Q

What an example of an inferior good?

A

Frozen Veg

Tinned fruit

73
Q

What dies it mean when there is a high Income elasticity?

A
  • Demand is sensitive to changes in real incomes
  • Demand is cyclical, economic expansion means demand will grow strongly but may fall in recession
  • Can be difficult for businesses to accurately forecast demand and make capital investment decisions
74
Q

What dies it mean when there is a low Income elasticity?

A
  • Demand is more stable during fluctuations in the economic cycle
  • Over time, the share of consumer spending on inferior goods and normal necessities tends to decline
  • Long run, businesses need to invest in/ focus on products with a higher income elasticity of demand if they want to increase profits
75
Q

What is cross price elasticity?

A

XPeD measures the responsiveness of demand for good X over the change in price for good Y
+ Substitute
- Complementary

76
Q

How do you calculate XPeD?

A

% change in the price of good Y

77
Q

What is Price elasticity of supply?

A

Measures the extend to which quantity is supplied over a change in price

78
Q

What do the values for PeS mean?

A

PeS1- Elastic
PeS=1- Unitary elastic
PeS=0- Perfectly inelastic
PeS=Infinity- Perfectly inelastic

79
Q

What determines supply elasticity?

A
  • Factor substitution possibilities, can labour or capital inputs be switched easily when there is a change in demand
  • Spare production capacity available when there is spare capacity, businesses can expand output easily to meet rising demand without upward pressure on costs
  • Stocks (inventories) able to meet demand
  • a low level of stocks makes supply inelastic in the short term
  • when stocks can be released onto the market, supply is elastic
  • The time frame allowed
  • Short run (inelastic supply)
  • Long run (elastic supply)
  • Artificial limits on Supply
80
Q

How is PeS improved?

A
  • Creating spare capacity
  • Using the latest technology
  • Keeping sufficient stocks
  • Developing better storage systems
  • Prolonging the shelf life of products
  • Developing better distribution systems
  • Providing training for workers
  • Having flexible workers who can do a range of jobs
  • Locating production near to the market
  • Allowing inward migration of labour if there is a labour shortage
81
Q

What has caused a high demand for houses?

A

A lack of supply

Rough sleeping has increased by 55%

82
Q

What are the consequences for high house prices?

A
  • Homelessness
  • Increase in rentals
  • Increased debt
  • Repossessions
  • Wealth/Income inequality
  • Social change
  • Geographical immobility
83
Q

What could the government do to reduce homelessness and solve the housing crisis?

A
  • Subsidise
  • Provide more affordable housing
  • Simplify the planning system
  • Allow more (greenfield) land to be used for development
  • Recruit skilled staff
84
Q

What are the arguments for public healthcare (NHS)?

A
  • Healthcare is not profit maximising, don’t need incentives to provide a good service
  • Not a free market, patients trust doctor instead of looking for cheaper options
  • Everyone has access
  • Healthcare is a merit good, importance of check ups
  • Private healthcare insurance firms make large profit, more expensive healthcare for countries such as the US who have private pension
  • As healthcare is paid for by private insurance, there is less mechanism for evaluation the cost/benefit of different treatments, which may do little help as the bill is paid for by insurance companies.
85
Q

What are the arguments for Private healthcare?

A
  • Greater choice
  • Not limited by the public budget
  • Efficiency incentives to provide a better service
86
Q

What has happened to the value/competition for oil in the last 6 years

A

The price of oil has been dropping very fast as the domestic production has almost doubled in the last 6 years for the USA, meaning there is less competition as supply increases and developing countries are becoming more energy efficient, therefore demand for fuel has seen a reduction-bad for oil producing countries e.g. Iran, Brazil finding themselves in debt and out of business.

87
Q

What is OPEC’s role in trying to control the price of oil?

A

-Their aim is to obtain price stability and ensure stable revenue for oil producers
-They have a major say in the value of oil
-They control the price through supply/demand
However OPEC stopped trying to control the supply, leading to excess supply

88
Q

Draw a typical graph for MES.

A

y axis= Cost
x axis= Output
MES= the lowest point on the graph

89
Q

What is MES?

A

The lowest point a firm can produce such that long run costs are minimised (minimum efficient scale)
It is the MES that determines the structure of an industry

90
Q

What does the value of MES mean?

A 
The bigger the MES, more likely to be a monopoly 
1 firm= Monopoly
2 firms= Duopoly
few firms= Oligopoly 
Many firms= Perfect competition
91
Q

What are interrelated markets?

A

Consider increase and decrease in supply and demand and their likely effects in both the goods and associated markets.

92
Q

What is Derived demand?

A

When the demand for one good or service comes from the demand for another good or service. For example an increase in demand for cars will lead to an increase in derived demand for steel

93
Q

What is composite demand?

A

A good that is demanded for more than one purpose so that an increase in demand for one purpose reduces the available supply for the other purpose, typically leading to higher prices
For example, milk used in butter and cheese. Increases the demand for cheese and yoghurt might cause rises in the price of butter as the available supply of milk is used in other products

94
Q

What is joint supply?

A

When one good is produced , another good is also produced from the same raw material
e.g. and increase in demand for refined crude oil has lead to an increased supply of asphalt

95
Q

What is competing supply?

A

When raw materials are used to produce one good, they cannot produce another good
e.g. increased demand for biofuels has diverted crop growing away from food supply to the supply of fuel for motor vehicles

96
Q

What is a complementary good?

A

A good in joint demand/ demanded at the same time as another good
e.g. PS4 - PS4 games

97
Q

What is a substitute good?

A

A good in competing demand, a good which can be used in place of other goods
e.g. coke- pepsi

98
Q

What is an economy of scale?

A

As output increases, long-run average cost falls
As a firm grows in size by investing in new plant or buildings, it can benefit from economies of scale, although, beyond a certain size, firms may suffer from economies of scale.

99
Q

What is an diseconomy of scale?

A

Diseconomies of scale occur when an increase in output leads to to rising long-run average costs of production

100
Q

What is a technical economy of scale?

What are the 5 types?

A

A cost saving generated through changes to the production process as the scale of the procession and the level of output increases.

  • Invisibilities- Many types of plant or machinery are indivisible in the sense that there is a certain minimum size below which they cannot efficiently operate
  • The spreading of research and development costs-Research and development costs can be spread over a much larger period/production run, reducing the unit costs in the long run
  • Volume economies- With many types of capital equipment , costs increase less rapidly than capacity
    e. g. when a storage tank is doubled in dimension, its storage capacity increase 8 fold (theory of increased dimensions).
  • Economies of mass resources- The operation of many identical machines in a large plant means that proportionally fewer spare parts are needed to be kept as opposed to when fewer machines are involved
  • Economies of vertically linked processes-linking of processes in a single plant can save time, transport costs and energy.
101
Q

What are managerial economies of scale?

A

The larger the scale of a firm, the more likely it will benefit from the specialisation and division of labour
The use of specialists, accountants, marketing and lawyers

102
Q

What are marketing economies of scale?

A

Expensive advertising spending can be spread over huge volumes of scales- reduces the marketing costs per unit

103
Q

What are financial economies of scale?

A

Large firms able to negotiate cheaper finance deals. Larger firms are considered less risk so receive better interest rates on loans

104
Q

What are risk-bearing economies of scale?

A

Larger businesses can afford to produce a range of products and diversity

105
Q

What are economies of scope?

A

Factors that make it cheaper to produce a range of products together than to produce each one of them on its own
e.g. finance and marketing

106
Q

What are the reasons for diseconomies of scale?

A

Firms can suffer form many diseconomies in scale as they grow in size. Including managerial diseconomies of scale, communication failure, motivational diseconomies of scale.

107
Q

What is a managerial diseconomy of scale?

A

Administration of a firm becomes more difficult as it gets larger. Managerial functions are delegated to those who lack experience and therefore make bad decisions, increasing the average cost of production

108
Q

What is the communication failure (diseconomies of scale)?

A

In a large organisation, there may be too many layers of management between the top managers and ordinary production workers, staff can feel remote and under-appriechated , therefore productivity begins to fall and unit costs begin to rise

109
Q

What are motivation diseconomies of scale?

A

With large firms, it’s difficult to satisfy and motivate workers, over specialisation may lead to de-skilling as workers repeat boring tasks and have little incentive to use personal initiative in ways which help the employer.

110
Q

What are Internal economies of scale?

A

Cost saving resulting from the growth of the industry or market of which the firm is part

111
Q

What are external economies of scale?

A

Cost saving resulting from the growth of the industry or market of which the firm is a part
e.g. better transport network, communications infrastructure

112
Q

What are external diseconomies of scale?

A

Occur when too many firms are located in one area , local behaviour becomes scarce and firms have to bid higher wages to attract workers
Land and factories becomes scarce and rents begin to rise
The local traffic infrastructure becomes congested and so transport costs rise

113
Q

How do you avoid diseconomies of scale?

A

Development in HRM

  • Improving training, promotion, retention
  • Performance related pay schemes- leads to an improvement in motivation
114
Q

What is short run?

A

The time period in which at least one factor of production is fixed and cannot be changed, meaning the only way a form can produce more in the short run is by adding more variable factors to the fixed factors of production

115
Q

What is long run?

A

The time periodic which no factors of production are fixed and which all the factors can be varied.

116
Q

What are fixed costs?

A

Costs which in the short run do not vary with production rent, rates, insurance costs, admin costs, all change but not in relation to output

117
Q

What are variable costs?

A

Costs that vary with output, even in the short run, raw materials primarily. More of those are needed to sell more units to customers
Long run- All costs are variable

118
Q

What are total costs?

A

The sum of all costs incurred in production at a certain level of output

119
Q

How do you calculate average cost?

A

Output

120
Q

A market requires an output of 100 units of a given product, MES =20, How many firms in the market?

A

Oligopoly, 5 firms

121
Q

A market requires an output of 10000 units of a given product, MES =1, How many firms in the market?

A

10,000- perfect competition

122
Q

What is an example of economies of scale?

A

Tap water

123
Q

What is total revenue?

A

All money received by a firm from selling it’s total output

124
Q

How do you calculate total revenue?

A

Price (or average revenue) X Quantity

125
Q

What is average revenue?

A

Total Output
Average revenue=Price

126
Q

What is profit?

A

The difference between total sales revenue and total cost of production

127
Q

What are the requirements for competitive markets and perfect competition?

A
  • Large numbers of buyers/sellers
  • Producing homogeneous goods
  • There are no barriers to entry
  • Both buyers and sellers are price takers
  • Buyers(consumers) and sellers(firms) have complete information
128
Q

What is a concentrated market?

A

A market containing very few firms in the extreme one firm (monopoly) has a high concentration ratio

129
Q

What is Monopoly power?

A

The power of a firm to act as a price maker rather than as a price taker

130
Q

What is imperfect competition?

A

Any market structure lying between the extremes of perfect competition and pure monopoly

131
Q

What is a monopoly?

A

The firm is the industry - the whole output of the industry is in the hands of a single firm
There are barriers to entry, no other firm is able to enter the monopoly

132
Q

What is a pure monopoly?

A

When there is only one firm in the market

133
Q

What is a natural monopoly?

A

When a country or firm has complete control over a natural resource and when only one firm could benefit from full economies of scale (where there are very high fixed costs)

134
Q

What is a legal monopoly?

A

Any firm which has more than 25% market share

135
Q

What are barriers to entry?

A

Preventing new firms from entering the market

136
Q

What is a natural barrier?

A

A barrier which is not man made (innocent barriers)

137
Q

What is an artificial barrier?

A

Strategic barriers as a result of deliberate action by a firm

138
Q

What are artificial barriers of entry created by a monopoly power?

A

Patent Laws- allows the designer of a product sole right to the exploitation of the invention for a number of years
e.g. the dyson ball
Incumbent(existing firms in the industry) firm has exploited economies of scale and can produce at a lower cost than any would-be entrant. The incumbent firm could lower their prices, limit pricing and threaten potential entrants with a price way that might bankrupt any possible competitor.

139
Q

What are natural barriers of entry created by a monopoly power?

A
  • Nationalisation- prohibits competition by law

- High fixed costs

140
Q

What is an example of a firm that has gone through privatisation from Gov to private?

A

The royal mail

141
Q

What is an example of a firm that has gone through nationalisation from private to Gov?

A

Northern Rock

142
Q

What is informative advertising?

A

Provides customers and producers with useful information about goods/services
Increases competition because it provides consumers and producers with useful information

143
Q

What is persuasive advertising?

A

Attempts to persuade potential customers that a good/service has desirable characteristics that make it worth buying

  • Makes the demand curve less elastic
  • Reduces competition
  • Less likely to go for substitutes
  • Little information about the product is given
  • Focuses on image and feelings
144
Q

What is saturation advertising?

A
  • Through flooding the market with information and persuasion about a firms product, this functions as a man-made barriers market entry by making it difficult for smaller firms to compete
  • Used to prevent small forms from entering the market as they cannot afford to keep up with the level of advertising and promotion
  • Supermarkets often unwilling to stock goods produced by new entrants because their products are not advertised enough
145
Q

Draw a perfect competition graph.

A 
Notes
Allocative efficiency
MC
ATC
AR=D=P=MR
146
Q

Draw an imperfect competition graph

A 
Notes
Super normal profits
Normal profit
Profit maximising
MC (S)
ATC
AR=D=P
MR
147
Q

What are the 3 forms of advertising?

A
  • Informative
  • Persuasive
  • Saturation
148
Q

What is a price maker?

A

Choosing to set the price at which the product is sold. The demand curve will dictate how many can be sold at this price

149
Q

What is a Quantity Setter?

A

Dictates the maximum price at which the chosen quantity could be sold. The demand curve will dictate the price at which the quantity could be sold for

150
Q

What is a trade-off?

A

A monopoly cannot set price or quantity independent of each other. Firms try not to make this choice by advertising or other promotions shift the demand curve to the right through advertising etc.

151
Q

What is a concentration ratio?

A

A ratio which indicates the total market share of a number of heading firms in a market , or the output of these firms as a percentage of total output

152
Q

What does a perfectly competitive market provide?

A 
Productive efficiency 
"Survival of the fittest"
Normal profits- No dynamic efficiency 
No innovation
Equal consumer and producer surplus
153
Q

What does an imperfect market provide?

A 
No incentive to reduce costs
Wastage
Isn't allocative efficient
Qty is lower
Benefit from supernormal profits
Dynamic efficiency 
Reduces consumer surplus and increases producer surplus 
Benefit from economies of scale
154
Q

What is the basic assumption of the aim of a firm

A

-To maximise profits
-Maximise growth
to grow and expand so to benefit from economies of scale
to dominate an industry
out-compete on price/quantity
mergers and takeovers e.g. Vodaphone - 3rd largest UK firm after takeovers
willing to make lower level of profit in order to increase the size of the market share

155
Q

What is satisficing?

A

Making a satisfactory level of profit to pursue other objectives e.g. growth and expansion

156
Q

What is price competition?

A

Reducing the price of a good or service to gain sales by making it more attractive for consumers

157
Q

What is limit pricing?

A

Reducing the price of a good to just above the average cost to deter the entry of new firms into the market. Prices are set as levels which are likely to make it unprofitable for potential entrants who might consider coming into the market

158
Q

What is Predatory Pricing?

A

Temporarily reducing the price of a good below average cost to drive smaller firms or new market entrants out of the market

159
Q

What are the 3 factors that make up public goods?

A

-Non rejectable
-Non excludable
-Non rivalrous
council tax funding, Not always provided by the government

160
Q

Whats an example of a public good?

A

Street Lights

161
Q

What is a quasi public good?

A

Contains features of private and public goods

e.g. pay per view

162
Q

What are the 3 factors that make up private goods?

A
  • Excludable
  • Rivalrous
  • Rejectable
163
Q

Whats an example of a private good?

A

e.g. jumper, Mc D’s

164
Q

Why does the state provide public goods?

A
  • On grounds of equality- people on all levels of income can have access to them
  • Provision on grounds of need rather than ability to pay
  • Grounds of efficiency- easier to provide collectively
  • To overcome free-rider problem
  • To correct for market failure
  • The failure of the market to provide sufficient public goods
165
Q

What is market failure?

A

Market failure occurs when a free-flowing market, operating without government intervention fail to deliver an efficient or optimal allocation of resources

Economic and social welfare may not be maximised

Economics (7 decks)

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