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Economics 3 > Revision > Flashcards

Revision Flashcards

1
Q

What is composite demand

A

A good is demand for more than one purpose. An increase in demand for good A causes a fall in supply for good B

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2
Q

Are externalities in production associated with costs or benefits

A

Costs

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3
Q

What are some of the problems of indirect taxes

A

Size of tax can be misjudged due to imperfect information

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4
Q

With buffer stock the government can act as what

A

A supplier or a consumer

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5
Q

What is diminishing returns

A

Increasing amounts of a variable factor are added to a fixed factor and the amount added to total product by each additional unit of the variable factor decreases. Occurs after the lowest point on the MC and is a short run theory

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6
Q

In a diagram showing Average product and marginal product what are the axis?

A

Product and factor input

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7
Q

What are the disadvantages of privatisation

A

Monopoly abuse
Short termisum
Loss of capital assets
Assets sometimes sold at a loss

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8
Q

What are ways that income inequality can be addressed

A

Welfare/transfer payments

Education and training

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9
Q

What is the equation of index numbers

A

Actual year / base year x100

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10
Q

How can markets be made more contestable

A

Remove barriers to entry to increase the likelihood of competition

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11
Q

What is a firms sales maximising point

A

AC=AR

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12
Q

What are the aims of privatised firms

A

Profit maximise by minimising costs

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13
Q

What are the different types of nationalisation

A

Contracting

Marketisation

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14
Q

What are the aims of nationalised firms

A

For the benefit of society

Wage maximisation

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15
Q

What is price discrimination

A

Different prices charged to different groups of consumer for the same product at the same cost of production

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16
Q

What are the conditions required for price discrimination

A

Prevention of resale
Varying elasticities
Control of the market- no firms that can undercut price

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17
Q

What are the methods of price discrimination

A

Time
Geographical
Customer age

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18
Q

What are the advantages of price discrimination

A

Larger output - more consumers can afford the product
Income distribution
Profits an be reinvested

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19
Q

What is the negatives in the consumer of price discrimination

A

Loss of welfare- less consumer surpluse

Inequitable

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20
Q

What are the advantages to the price discriminator of price discrimination

A

Increased profits

Increased output

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21
Q

What are the assumptions of perfect competition

A 
Large number of buyers and sellers 
No firm large enough to affect price 
Perfect market
Homogenous products 
Freedom of entry and exit 
Readily available information 
Factors of production perfectly mobile
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22
Q

Are small firms in compete active markets more likely to create externalities?

A

Yes

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23
Q

A firm will continue to produce when making a loss when what occurs

A

Average variable cost is lower than price

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24
Q

Monopolies have what type of inefficiency

A

X inefficiency

25
What are the sources of monopoly power
``` Patent laws Nationalisation Limit pricing Fixed costs Product differentiation Control of raw materials ```
26
What are some of the key points to a natural monopoly
High sunk costs Duplication unless art and wasteful MES occurs at high levels of output
27
What is the income effect
Can work few hours for same pay
28
What is the substitution effect
Individuals work more hours as opportunity cost of leisure increases
29
What are some examples if restrictive trade practices
Distributors prices Resale price maintenance Refusals to supply outlets Full line forcing
30
What can be done to deal with monopolies
``` Compulsory breaking up Price controls Taxes on excess profits Nationalisation Privatisation Deregulation ```
31
What are the reasons of nationalisation
Economies of scale Natural monopoly Provision- public goods
32
What conditions are required to colluded
Major producers all members of a cartel Market isolated from suppliers outside cartel Higher barriers to entry All producers must agree not to defect Cartel members selling quite homogenous products
33
What are the consequences of having collusion
Higher prices Increased non price competition Higher prices
34
What are the types of informal collusion
Dominate firm leadership Barometric price leadership- smaller firm leads price Parallel pricing Tacit collusion
35
What are menu costs
Costs incurred as a result of changing prices
36
What are the barriers to entry in an oligopoly
``` Predatory pricing Advertising Multiplicity of brands Integration Non price competition Branding R&D ```
37
What is brand loyalty
A measure indicating a degree of the consumer loyalty
38
What are the key points for a price war
One firm lowers price to increase market share Other firms lower price to compete Decreased revenue for all firms
39
What is the DMRC
Region over which a change in marginal costs will not lead to a change in output or price
40
What are th problems with the theory of the DMRC
``` Regional price determination Doesn't deal with non price competition Ignores effect of limited price competition Assumes reaction by competing firms Larger firms may ignore model ```
41
The prisoners dilemma suggest what
Both firms will benefit from colluding instead of competing
42
When representing income elasticity of demand on a diagram should there be an expansion in demand or a shift in demand
Shift in demand
43
How can diminishing marginal returns be prevented
Specialisation and moving into larger factories
44
What is sub normal profit
Less than is required to ensure the supply of the good
45
Other than profit maximising what other objectives may they have
Satisficing Social responsibility Sale maximisation- managers want firms to be as large as possible Organisational theory- slow decision making Cost plus pricing Long run profit maximising
46
How can a firm grow internally
Using profits Increased number of a fixed factor Innovating
47
Why can a firms growth be slow
Market saturation Strength of competition Lack of profit
48
What are the problems with a merger
Cultural/structural differences Poor communication Inability to adapt to change Poor communication/ diseconomies
49
What are the benefits or external growth over internal growth
Tim constraints - quicker to buy a factory than build one Cost- can sometimes be cheaper to buy out a firm Branding- have to build up a brand if internal Asset stripping- take over a firm and sell its assets for more Quicker way to increase market share
50
What are the characteristics of contestable markets
Absences of entry and exit barriers Large pool of entrants Perfect information Incumbents vulnerable to hit and run competition
51
Where AR=AC this is know as what price
Entry limit price
52
Why are contestable markets good
Prices fall Quantity increases Allocative efficiency Increase in consumer surplus
53
What is the definition of perfectly contestable markets
Define by firms making normal profits
54
Why is a contestable market bad
No dynamic efficiency | Might not be the large decreases in price as suggested
55
What are the advantages of deregulation
More consumer choice - increased allocative efficiency Productive efficiency- lowest point on ATC Increase in dynamic efficiency to gain advantages
56
What are the problems of deregulation
Loss of natural monopolies | Formation of oligopolies and monopolies - for example local bus companies
57
The success of deregulation depends on what
Short run v long run Height of other barriers to entry Level of government regulation -against anticompetitive practises
58
Why is state provision of merit and public goods good
Improves resource allocation No price exclusion All social benefits considered
59
Why is state provision bad
Opportunity cost State run organisations tend to be wasteful Ignores the private sector

Economics 3 (7 decks)

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