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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
Q

What are the sources of monopoly power

A 
Patent laws 
Nationalisation 
Limit pricing 
Fixed costs 
Product differentiation 
Control of raw materials
26
Q

What are some of the key points to a natural monopoly

A

High sunk costs
Duplication unless art and wasteful
MES occurs at high levels of output

27
Q

What is the income effect

A

Can work few hours for same pay

28
Q

What is the substitution effect

A

Individuals work more hours as opportunity cost of leisure increases

29
Q

What are some examples if restrictive trade practices

A

Distributors prices
Resale price maintenance
Refusals to supply outlets
Full line forcing

30
Q

What can be done to deal with monopolies

A 
Compulsory breaking up 
Price controls 
Taxes on excess profits 
Nationalisation 
Privatisation 
Deregulation
31
Q

What are the reasons of nationalisation

A

Economies of scale
Natural monopoly
Provision- public goods

32
Q

What conditions are required to colluded

A

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
Q

What are the consequences of having collusion

A

Higher prices
Increased non price competition
Higher prices

34
Q

What are the types of informal collusion

A

Dominate firm leadership
Barometric price leadership- smaller firm leads price
Parallel pricing
Tacit collusion

35
Q

What are menu costs

A

Costs incurred as a result of changing prices

36
Q

What are the barriers to entry in an oligopoly

A 
Predatory pricing 
Advertising 
Multiplicity of brands 
Integration
Non price competition 
Branding 
R&D
37
Q

What is brand loyalty

A

A measure indicating a degree of the consumer loyalty

38
Q

What are the key points for a price war

A

One firm lowers price to increase market share
Other firms lower price to compete
Decreased revenue for all firms

39
Q

What is the DMRC

A

Region over which a change in marginal costs will not lead to a change in output or price

40
Q

What are th problems with the theory of the DMRC

A 
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
Q

The prisoners dilemma suggest what

A

Both firms will benefit from colluding instead of competing

42
Q

When representing income elasticity of demand on a diagram should there be an expansion in demand or a shift in demand

A

Shift in demand

43
Q

How can diminishing marginal returns be prevented

A

Specialisation and moving into larger factories

44
Q

What is sub normal profit

A

Less than is required to ensure the supply of the good

45
Q

Other than profit maximising what other objectives may they have

A

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
Q

How can a firm grow internally

A

Using profits
Increased number of a fixed factor
Innovating

47
Q

Why can a firms growth be slow

A

Market saturation
Strength of competition
Lack of profit

48
Q

What are the problems with a merger

A

Cultural/structural differences
Poor communication
Inability to adapt to change
Poor communication/ diseconomies

49
Q

What are the benefits or external growth over internal growth

A

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
Q

What are the characteristics of contestable markets

A

Absences of entry and exit barriers
Large pool of entrants
Perfect information
Incumbents vulnerable to hit and run competition

51
Q

Where AR=AC this is know as what price

A

Entry limit price

52
Q

Why are contestable markets good

A

Prices fall
Quantity increases
Allocative efficiency
Increase in consumer surplus

53
Q

What is the definition of perfectly contestable markets

A

Define by firms making normal profits

54
Q

Why is a contestable market bad

A

No dynamic efficiency

Might not be the large decreases in price as suggested

55
Q

What are the advantages of deregulation

A

More consumer choice - increased allocative efficiency
Productive efficiency- lowest point on ATC
Increase in dynamic efficiency to gain advantages

56
Q

What are the problems of deregulation

A

Loss of natural monopolies

Formation of oligopolies and monopolies - for example local bus companies

57
Q

The success of deregulation depends on what

A

Short run v long run
Height of other barriers to entry
Level of government regulation -against anticompetitive practises

58
Q

Why is state provision of merit and public goods good

A

Improves resource allocation
No price exclusion
All social benefits considered

59
Q

Why is state provision bad

A

Opportunity cost
State run organisations tend to be wasteful
Ignores the private sector

Economics 3 (7 decks)

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