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economics > t3 key terms > Flashcards

t3 key terms Flashcards

1
Q

allocative efficiency:

A

achieved when society is producing the appropriate bundle of goods and services relative to consumer preferences

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2
Q

arbitrage:

A

a process by which prices in two market segments are equalised by the purchase and resale of products by market participants

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3
Q

average cost:

A

total cost divided by the quantity produced

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4
Q

backward integration:

A

a process under which a firm merges with a firm that is involved in an earlier part of the production chain

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5
Q

barrier to entry:

A

a characteristic of a market that prevents new firms from readily joining the market
cartel an agreement between firms

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6
Q

cartel

A

an agreement between firms on price and output with the intention of maximising their joint profits

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7
Q

competition policy

A

policy a set of measures designed to promote competition in markets and protect consumers in order to enhance the efficiency of markets

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8
Q

competitive tendering

A

a process by which the public sector calls for private firms to bid for a contract to provide a good or service

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9
Q

conglomerate merger

A

a merger between two firms operating in different markets

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10
Q

constant returns to scale

A

found when long-run average cost remains constant with an increase in output, i.e. when output and costs rise at the same rate

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11
Q

contestable market

A

market in which the existing firm makes only normal profit, as it cannot set a higher price without attracting entry, owing to the absence of barriers to entry and sunk costs
contracting out a situation in which

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12
Q

contracting out

A

a situation in which the public sector places activities in the hands of a private firm and pays for the provision

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13
Q

corporate social responsibility

A

actions that a firm takes in order to demonstrate its commitment to behaving in the public interest

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14
Q

cost-plus pricing

A

a pricing policy whereby firms set their price by adding a mark-up to average cost

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15
Q

derived demand

A

demand for a good or service not for its own sake, but for what it produces, e.g. labour is demanded for the output that it produces

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16
Q

diseconomies of scale

A

occur for a firm when an increase in the scale of production leads to higher long-run average costs

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17
Q

dominant strategy

A

situation in game theory where a player’s best strategy is independent of those chosen by others

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18
Q

dynamic efficiency

A

view of efficiency that takes into account the effect of innovation and technical progress on productive and allocative efficiency in the long run

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19
Q

economies of scale

A

what happens if an increase in a firm’s scale of production leads to production at lower long-run average cost

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20
Q

economies of scope

A

economies arising when average costs fall as a firm increases output across a range of different products

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21
Q

external economies of scale

A

economies of scale that arise from the expansion of the industry in which a firm is operating

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22
Q

firm

A

an organisation that brings together factors of production in order to produce output

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23
Q

fixed costs

A

costs that do not vary with the level of output

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24
Q

forward integration

A

integration a process under which a firm merges with a firm that is involved in a later part of the production chain

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25
Q

game theory

A

a method of modelling the strategic interaction between firms in an oligopoly

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26
Q

horizontal integration

A

result of a horizontal merger

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27
Q

horizontal merger

A

merger between two firms at the same stage of production in the same industry

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28
Q

industry long-run supply curve (LRS)

A

under perfect competition, the curve that, for the typical firm in the industry, is horizontal at the minimum point of the long-run average cost curve

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29
Q

internal economies of scale

A

economies of scale that arise from the expansion of a firm

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30
Q

law of diminishing returns

A

a law stating that if a firm increases its inputs of one factor of production while holding inputs of the other factor fixed, it will eventually derive diminishing marginal returns from the variable factor

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31
Q

limit price

A

the highest price that an existing firm can set without enabling new firms to enter the market and make a profit

32
Q

long run

A

the period over which the firm is able to vary the inputs of all its factors of production

33
Q

marginal cost

A

the cost of producing an additional unit of output

34
Q

marginal physical product of labour(MPPL)

A

(MPPL) the additional quantity of output produced by an additional unit of labour input

35
Q

marginal productivity theory

A

a theory which argues that the demand for labour depends upon balancing the revenue that a firm gains from employing an additional unit of labour against the marginal cost of that unit of labour

36
Q

marginal revenue

A

the additional revenue gained by a firm from selling an additional unit of output

37
Q

marginal revenue product of labour (MRPL

A

the additional revenue received by a firm as it increases output by using an additional unit of labour input, i.e. the marginal physical product of labour multiplied by the marginal revenue received by the firm

38
Q

market structure

A

the market environment within which firms operate

39
Q

minimum efficient scale

A

the level of output at which long-run average cost stops falling as output increases

40
Q

minimum wage

A

wage a government-set minimum wage rate below which firms are not allowed to pay

41
Q

monopolistic competition

A

a market that shares some characteristics of monopoly and some of perfect competition

42
Q

monopoly

A

a form of market structure in which there is only one seller of a good or service

43
Q

monopsony

A

a market in which there is a single buyer of a good, service or factor of production

44
Q

multinational corporation

A

a firm that conducts its operations in a number of countries

45
Q

n-firm concentration ratio

A

a measure of the market share of the largest n firms in an industry

46
Q

Nash equilibrium

A

a situation occurring within a game when each player’s chosen strategy maximises payoffs given the other player’s choice, so that no player has an incentive to alter behaviour

47
Q

natural monopoly

A

a monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable

48
Q

non-pecuniary benefits

A

benefits offered to workers by firms that are not financial in nature

49
Q

normal profit

A

profit that covers the opportunity cost of capital and is just sufficient to keep the firm in the market

50
Q

oligopoly

A

a market with a few sellers, in which each firm must take account of the behaviour and likely behaviour of rival firms in the industry

51
Q

oligopsony

A

a market in which there are a few buyers of a good, service or factor of production

52
Q

overt collusion

A

a situation in which firms openly work together to agree on prices or market shares

53
Q

participation rate

A

the proportion of the population of working age who are in employment or seeking work

54
Q

perfect competition

A

a form of market structure that produces allocative and productive efficiency in long-run equilibrium

55
Q

perfect/first-degree price discrimination

A

a situation arising in a market whereby a monopoly firm is able to charge each consumer a different price

56
Q

predatory pricing

A

an anti-competitive strategy in which a firm sets price below average variable cost in an attempt to force a rival or rivals out of the market and achieve market dominance

57
Q

price taker

A

taker a firm that must accept whatever price is set in the market as a whole

58
Q

principal–agent (agency) problem

A

a problem arising from conflict between the objectives of the principals and those of the agents who take decisions on their behalf

59
Q

Prisoners’ Dilemma

A

an example of game theory with a range of applications in oligopoly theory

60
Q

Private Finance Initiative (PFI)

A

a funding arrangement under which the private sector designs, builds, finances and operates an asset and associated services for the public sector in return for an annual payment linked to its performance in delivering the service

61
Q

product differentiation

A

a strategy adopted by firms that marks their product as being different from their competitors’

62
Q

productive efficiency

A

occurs when firms have chosen appropriate combinations of factors of production and produce the maximum output possible from those inputs, thus producing at minimum long-run average cost

63
Q

public–private partnership (PPP)

A

an arrangement by which a government service or private business venture is funded and operated through a partnership of government and the private sector

64
Q

regulatory capture

A

a situation in which the regulator of an industry comes to represent the industry’s interests rather than regulating it

65
Q

relevant market

A

a market to be investigated under competition law, defined in such a way that no major substitutes are omitted but no non-substitutes are included

66
Q

satisficing behaviour

A

under which the managers of firms aim to produce satisfactory results for the firm, e.g. in terms of profits, rather than trying to maximise them

67
Q

short run

A

period over which a firm is free to vary the input of one of its factors of production (labour), but faces a fixed input of the other (capital)

68
Q

short-run supply curve

A

for a firm operating under perfect competition, the curve given by its short-run marginal cost curve above the price at which MC = SAVC; for the industry, the horizontal sum of the supply curves of the individual firms

69
Q

static efficiency

A

efficiency at a particular point in time

70
Q

sunk costs

A

short-run costs that cannot be recovered if the firm closes down

71
Q

supernormal profits/abnormal profits/economic profit

A

terms referring to profits that exceed normal profit

72
Q

tacit collusion

A

situation occurring when firms refrain from competing on price, but without communication or formal agreement between them

73
Q

third-degree price discrimination

A

a situation in which a firm is able to charge groups of consumers a different price for the same product

74
Q

variable costs

A

costs that vary with the level of output

75
Q

vertical merger

A

a merger between two firms in the same industry, but at different stages of the production process

76
Q

X-inefficiency

A

a situation arising when a firm is not operating at minimum cost, perhaps because of organisational slack

economics (8 decks)

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