Th3: Definitions 4 Flashcards
Perfectly contestable market
a market with no barriers to entry, where a new firm can easily enter and compete against incumbent firms completely equally
Predatory pricing
when a large, established firm is threatened by new entrants so sets such a low price that other firms make losses and are driven out of the market
Price leadership
where one firm sets prices and other firms tend to follow this firm as they are fearful of engaging in a price war
Price wars
where firms continuously drive prices down to the point where they are frequently making losses and firms are forced to leave
Principal-agent problem
where the agent makes decisions on behalf of the principal - the agent should maximise the benefits of the principal but have the temptation of maximising their own benefits
Private sector
the part of the economy that is owned and run by individuals or groups of individuals
Privatisation
the sale of government equity in nationalised industries or other firms to private investors
Productive efficiency
when resources are used to give the maximum possible output at the lowest possible cost
MC = AC
Profit maximisation
when firms produce at a point which derives the greatest profit
MC = MR
Profit satisficing
when a firm earns just enough profit to keep its shareholders happy
Public sector
the part of the economy that is owned or controlled by a local or central government
Regulatory capture
when regulators become more empathetic and are able to ‘see things from the firm’s perspective’ which removes impartiality and weakens their ability to regulate
Revenue maximisation
when firms produce at a point which derives the greatest revenue
MR = 0
Sales maximisation
when firms produce at a point where they sell as many of their goods and services as possible without making a loss
AR = AC
Static efficiency
the level of efficiency at one point in time
