Th3: Definitions 1 Flashcards
Allocative efficiency
when resources are allocated to the best interests of society, when there is a maximum social welfare and maximum utility
P = MC
Asymmetric information
when one party has more information than the other, leading to market failure and causing problems for regulators
Average cost / Average total cost (AC/ATC)
the cost of production per unit
total costs
—————————
quantity produced
Average revenue (AR)
the price each unit is sold for
TR
—————–
quantity sold
Bilateral monopoly
where there is only one buyer and one seller in the market
Cartels
a formal collusive agreement where firms enter into an agreement to mutually set prices
Collusion
occurs when firms agree to work together, for example by setting a price or fixing the quantity they produce
Competition policy
government action to increase competition in markets
Competitive tendering
when the government contracts out the provision of a good or service and invites firms to bid for the contract
Conglomerate integration
the merger of firms with no common connection
Constant returns to scale
output increases by the same proportion that the inputs increase by
Contestable market
when there is the threat of new entrants into the market, forcing firms to be efficient
Decreasing returns to scale
an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion
Demergers
a single business is broken down into two or more businesses to operate on their own, to be sold or to be dissolved
Deregulation
the removal of legal barriers to allow private enterprises to compete in a previously protected market
