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economics paper 1 > theme 3 > Flashcards

theme 3 Flashcards

1
Q

why firms grow

A

economies of scale, greater share of the market, more security with built up assets

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2
Q

why firms remain small

A

constraints on growth, size of the market, access to finance, owner objectives

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3
Q

private sector

A

owned and run by individuals- sole traders and plc’s

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4
Q

public sector

A

owned and run by the government

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5
Q

organic growth

A

increase in output e.g increasing labour or product range

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6
Q

advantages of organic growth

A

keep control over business, inexpensive

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7
Q

disadvantages of organic growth

A

other firms may have better markets or growth, harder to find new ideas, may be too slow

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8
Q

vertical integration

A

merger or takeover integration and different stages of production

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9
Q

horizontal integration

A

merger or takeover of firms at the same stage of production

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10
Q

conglomerate integration

A

firms in different industry integrate

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11
Q

reasons for demergers

A

value of the company, different objectives

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12
Q

profit maximisation

A

produce at mc=mr

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13
Q

revenue maximisation

A

produce at mr=0

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14
Q

sales maximization

A

produce at ac=ar

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15
Q

managerial utility maximisation

A

managers will make decisions to maximise their own satisfaction

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16
Q

allocative efficiency

A

firms aim to maximise social welfare produce mc=ar

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17
Q

fixed cost

A

costs that remain constant e.g. rent

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18
Q

variable costs

A

costs that change with output e.g. raw materials

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19
Q

diminishing marginal productivity/diminishing law of returns

A

there will come a point when each extra unit will produce less extra output than the previous

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20
Q

financial economies

A

greater security due to more assets

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21
Q

reasons for diseconomies of scale

A

workers, geography, price of materials, management

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22
Q

productive efficiency

A

produce at the lowest average cost so minimum resources used for maximum output -mc=ac

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23
Q

dynamic efficiency

A

when resources are allocated efficiently over time with new products

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24
Q

x-inneficiency

A

fails to minimize average costs doesnt produce at lowest point on ac curve

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25
Q

perfect competition

A

many buyers and sellers, free entry and exit, perfect knowledge, products homogenous, productively and allocative efficient

26
Q

monopolistic competition

A

large numbers of buyers and sellers, no barriers to entry or exit, differentiated goods

27
Q

oligopoly

A

few firms dominate market, products differentiated, high concentration ratio, interdependent, barriers to entry and exit

28
Q

concentration ratio

A

total sales of firms/total size of market x100

29
Q

collusive oligopoly

A

work together to maximise industry profit, reduce fear of price cutting

30
Q

non-collusive oligopoly

A

risk of collusion as its illegal, firms may have a strong business model

31
Q

overt collusion

A

firms come to a formal agreement

32
Q

tacit collusion

A

no formal agreement

33
Q

price wars

A

non-price competition is weak, drive prices down so firms make a loss

34
Q

predatory pricing

A

established firm is threatened by new entry, set such a low price others can’t compete- ilegal

35
Q

limit pricing

A

prevent new entrants, make at least normal profit - mainly used in contestable markets

36
Q

price skimming

A

set a high price at initial launch and gradually decrease

37
Q

penetration pricing

A

initial low price to gain custom and raise the price and hope people continue to buy

38
Q

non-price competition

A

advertising, loyalty cards, branding, quality, customer service, online services

39
Q

monopoly

A

more than 25% of the market, short run profit maximise, high barriers to entry, dynamically efficient

40
Q

third degree price discrimination

A

charge different prices to different people for the same good/service

41
Q

benefits/costs of monopoly on firms

A

huge profits, finance for investment, compete overseas however no competition so in lR may not profit maximise

42
Q

monopsony

A

one buyer in the market, same characteristics of a monopoly

43
Q

contestable markets

A

perfect knowledge, freedom of entry and exit, low product loyalty

44
Q

implications of contestable markets

A

prices forced down, only make normal profit, productive and allocative efficient

45
Q

sunk costs

A

a fixed cost that a business cannot recover if it leaves the industry

46
Q

demand curve for labour

A

show the quantity of labour a firm will hire at each wage rate

47
Q

derived demand for labour

A

the more product a firm aims to make the more they will hire

48
Q

factors influencing demand for labour

A

wages, demand for product, price of materials, technology, regulation

49
Q

factors influencing the supply of labour

A

wages, population, qualifications, non-monetary benefits

50
Q

occupational immobility

A

workers find it difficult to move jobs due to lack of skills

51
Q

geographical immobility

A

workers find it hard to move from one place to another

52
Q

wages in perfect competition

A

workers will all be paid the same

53
Q

labour market issues

A

skill shortages, young workers, retirement, wage inequality, migration

54
Q

government intervention to the labour market

A

raise minimum wage, tackle immobility e.g increase supply of houses, increase training

55
Q

cma

A

promote competition for the benefit of consumes

56
Q

controlling monopolies

A

price regulation- set price caps
profit regulation- encourage investment
quality standards- reduce exploitation
performance targets- introduce competition

57
Q

promotion of small business

A

training and grants to new business and tax incentives and subsidies to incentivize innovation

58
Q

deregulation

A

remove legal barriers to entry
privatisation

59
Q

privatisation

A

sale of government business to private investment

60
Q

impact of government intervention

A

prevent monopolies charging excessive prices, increase quality

61
Q

limits of government intervention

A

regulatory capture- regulators feel empathy toward firms and even be offered bribes it is an example of government failure

62
Q

asymmetric information

A

regulatory bodies have to use information provided to them by Industries to set price targets

economics paper 1 (2 decks)

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