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A Level Economics > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

Total Revenue =

A

Price x Quantity

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2
Q

Average Revenue =

A

Total Revenue / Quantity

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3
Q

Marginal Revenue =

A

Change in Total Revenue / Change in Quantity

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4
Q

Total Costs =

A

Fixed Costs + Variable costs

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5
Q

Average Costs =

A

Total Costs / Quantity

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6
Q

Marginal Costs =

A

Change in Total Costs / Change in Quantity

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7
Q

Profit =

A

Total Revenue - Total Costs

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8
Q

If profit equals 0, what is it?

A

Normal profit

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9
Q

If profit is greater than 0, what is it?

A

Supernormal profit

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10
Q

Marginal Productivity defintion

A

The amount produced by each additional worker. = Change in output / Change in workers

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11
Q

If marginal productivity falls what will rise?

A

Marginal Costs

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12
Q

Internal economies of scale examples:

A

Fun - Financial
Mums - Managerial
Try - Technical
Making - Marketing
P - Purchasing

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13
Q

External economies of scale definition

A

Cost savings outside of a firm but within an industry i.e. better transportation networks

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14
Q

Diseconomies of scale

A

Average cost of production increases as output increases

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15
Q

Minimum efficient scale definition

A

Minimum level of output needed for a business to fully exploit economies of scale

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16
Q

At what point is profit maximisation on a monoply diagram?

A

MR = MC

17
Q

At what point is revenue maximisation on a monoply diagram?

A

MR = 0

18
Q

At what point is sales maximisation on a monoply diagram?

A

ATC = AR

19
Q

At what point is satificing on a monoply diagram?

A

Sales max to price. Should form a triangle

20
Q

What is productive efficiency?

A

The lowest point of the average cost curve

21
Q

What is allocative efficiency?

A

When a firm produces at a point where economics welfare is maximised. (Supply meets demand)

22
Q

What is dynamic efficiency?

A

When a firm reinvests its profits to become more efficient

23
Q

What is being x-inefficient/efficient?

A

Costs being higher/lower than they should be

24
Q

When does a firm have static efficiency?

A

When it is allocatively and dynamically efficient

25
Q

Characteristics of a monoply (5)

A

Firm is the industry - the whole output is by the firm
Barriers to entry
No substitue goods
Profit maximise
Price maker

26
Q

Benfefits and drawbacks of a monoply to a consumer

A
  • Benefits: Dynamically efficient-> economies of scale -> lower prices, Innovation -> more choice
  • Drawbacks: Not allocatively efficient, restrict output -> drive up price, productively inefficieny, x-inefficient
27
Q

Benefits and drawbacks of a monoply to firms

A
  • Benefits: Exploit economies of scale -> lower costs, good for innovation, faster rate of tech development -> reduce costs -> better products
  • Drawbacks: X-inefficient -> high costs -> lower profits, productively inefficient
28
Q

Benefits and drawbacks of a monoply to workers

A
  • Benefits: Job security
  • Drawbacks: Low wages (monopsony power), deskilling (structural unemployment)
29
Q

Benefits and drawbacks of a monopy to suppliers

A
  • Benefits: Guranteed contracts to supply
  • Drawbacks: Lower prices offered due to monoply power (monopsony power)
30
Q

Price discrimination definition

A

When a firm with market power charges different prices for an identical product (i.e. age, time of day, geography)

31
Q

Conditions needed to price discriminate (3)

A

Market power
No resale
Segregate the market between consumers with different willingness to pay and with different price elasticity of demand

32
Q

What is cross-subsidisation?

A

Those who pay a higher price, subsidise those who pay a lower price (equitable)

33
Q

Price discrimination pros and cons

A

Pros: Profitable -> higher total revenue, larger output, cross subsidisation -> poorer customers, manages demand, reinvest profits -> long-term benefits of increased dynamic efficiency + lower prices
Cons: Unfair, predatory pricing, decline in consumer surplus

34
Q

What is a natural monoply?

A

When competition would be inefficient as it would increas costs i.e. railways, water companies

35
Q

Characterisitics of a natural monoply

A

High capital cost to set up
Duplication is unecessary and wasteful
The MES does not occur until an extremely high level of output as the economies of scale do not dimmish in the forseable future

36
Q

Perfectly comeptitive market characteristics

A

Large number of buyers and sellers
Produce homogeneous goods (all products the same)
No one firm or individual buyer is large enough to affect market price
Factors of production are perfectly mobile
Customers and firms have perfect knowledge
No barriers to exit or entry

Examples: foreign exchange markets, agricultural markets, internet related markets

37
Q

What is the shutdown price and why may firms stay in the market if they make a loss?

A

AR (P) < AVC
In case other firms leave

38
Q
A

A Level Economics (15 decks)

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