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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
game theory
a method of modelling the strategic interaction between firms in an oligopoly
26
horizontal integration
result of a horizontal merger
27
horizontal merger
merger between two firms at the same stage of production in the same industry
28
industry long-run supply curve (LRS)
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
29
internal economies of scale
economies of scale that arise from the expansion of a firm
30
law of diminishing returns
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
31
limit price
the highest price that an existing firm can set without enabling new firms to enter the market and make a profit
32
long run
the period over which the firm is able to vary the inputs of all its factors of production
33
marginal cost
the cost of producing an additional unit of output
34
marginal physical product of labour(MPPL)
(MPPL) the additional quantity of output produced by an additional unit of labour input
35
marginal productivity theory
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
marginal revenue
the additional revenue gained by a firm from selling an additional unit of output
37
marginal revenue product of labour (MRPL
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
market structure
the market environment within which firms operate
39
minimum efficient scale
the level of output at which long-run average cost stops falling as output increases
40
minimum wage
wage a government-set minimum wage rate below which firms are not allowed to pay
41
monopolistic competition
a market that shares some characteristics of monopoly and some of perfect competition
42
monopoly
a form of market structure in which there is only one seller of a good or service
43
monopsony
a market in which there is a single buyer of a good, service or factor of production
44
multinational corporation
a firm that conducts its operations in a number of countries
45
n-firm concentration ratio
a measure of the market share of the largest n firms in an industry
46
Nash equilibrium
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
natural monopoly
a monopoly that arises in an industry in which there are such substantial economies of scale that only one firm is viable
48
non-pecuniary benefits
benefits offered to workers by firms that are not financial in nature
49
normal profit
profit that covers the opportunity cost of capital and is just sufficient to keep the firm in the market
50
oligopoly
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
oligopsony
a market in which there are a few buyers of a good, service or factor of production
52
overt collusion
a situation in which firms openly work together to agree on prices or market shares
53
participation rate
the proportion of the population of working age who are in employment or seeking work
54
perfect competition
a form of market structure that produces allocative and productive efficiency in long-run equilibrium
55
perfect/first-degree price discrimination
a situation arising in a market whereby a monopoly firm is able to charge each consumer a different price
56
predatory pricing
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
price taker
taker a firm that must accept whatever price is set in the market as a whole
58
principal–agent (agency) problem
a problem arising from conflict between the objectives of the principals and those of the agents who take decisions on their behalf
59
Prisoners’ Dilemma
an example of game theory with a range of applications in oligopoly theory
60
Private Finance Initiative (PFI)
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
product differentiation
a strategy adopted by firms that marks their product as being different from their competitors’
62
productive efficiency
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
public–private partnership (PPP)
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
regulatory capture
a situation in which the regulator of an industry comes to represent the industry’s interests rather than regulating it
65
relevant market
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
satisficing behaviour
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
short run
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
short-run supply curve
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
static efficiency
efficiency at a particular point in time
70
sunk costs
short-run costs that cannot be recovered if the firm closes down
71
supernormal profits/abnormal profits/economic profit
terms referring to profits that exceed normal profit
72
tacit collusion
situation occurring when firms refrain from competing on price, but without communication or formal agreement between them
73
third-degree price discrimination
a situation in which a firm is able to charge groups of consumers a different price for the same product
74
variable costs
costs that vary with the level of output
75
vertical merger
a merger between two firms in the same industry, but at different stages of the production process
76
X-inefficiency
a situation arising when a firm is not operating at minimum cost, perhaps because of organisational slack

economics (8 decks)

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