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Economics DEFINITIONS > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

Allocative Efficiency

A

Where P=MC. Maximised utility and social welfare. Resources allocated in best interest of society.

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2
Q

Average Total Cost (ATC)

A

Total Cost / Quantity produced. The cost of production per unit

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3
Q

Average Revenue

A

Total Revenue / Quantity sold

The price each unit is sold for.

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4
Q

Bilateral Monopoly

A

Involving only one buyer and only one seller in the Market.

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5
Q

Cartel

A

A formal collusive agreement where firms agree to manually set prices.

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6
Q

Collusion

A

When firms agree to work together eg. By setting a price or fixing output.

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7
Q

Competition Policy

A

Government action to increase competition within markets.

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8
Q

Competitive Tendering

A

When Government contracts out the provision of a good or services and invites firms to bid for the contract.

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9
Q

Conglomerate Integration

A

The merger of firms with no common connections.

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10
Q

Constant returns to Scale

A

When Output increases at the same proportion as the factors of production are increased.

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11
Q

Contestable Markets

A

When there is a threat of new entrants into the market forcing firms to be more efficient.

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12
Q

Decreasing returns to Scale

A

When an increase in factors of production lead to a smaller proportion increase of output.

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13
Q

Demerger

A

When a business is broken down into two or more firms which then are operated separately, dissolved or sold.

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14
Q

Deregulation

A

The removal of legal barriers allowing private enterprises to compete in a previously protected market.

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15
Q

Derived Demand

A

When the Demand of one good is linked to the demand of another good.

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16
Q

Diminishing Marginal Productivity

A

When an additional factor of production leads to a smaller unit increase of output than the previous input.

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17
Q

Diseconomies of Scale

A

The disadvantages due to a business increasing in size, leading to inefficiency and rising costs.

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18
Q

Divorce of ownership from control

A

When the shareholders who own the business have little say in the day to day decisions.

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19
Q

Dynamic Efficiency

A

When investments into new technology increases efficiency and productivity in the long run.

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20
Q

Economies of Scale

A

The advantages of Large scale production that allow a large business to produce at a lower average cost than smaller businesses.

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21
Q

Fixed Costs

A

Costs that do not vary with Output

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22
Q

External Economies of Scale

A

Benefits that affect the industry as a whole due to economic activity within an individual firm.

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23
Q

For-profit Businesses

A

Sole aim is to make money

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24
Q

Game Theory

A

Used to predict the outcome of a decision made by one firm when it has incomplete information about the other firm.

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25
Q

Geographical Mobility of Labour

A

The ease and speed at which labour can move from one area to another.

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26
Q

Horizontal Integration

A

Merger of firms in the same industry at the same stage of production.

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27
Q

Increasing returns to scale.

A

When increasing factors of production lead to a larger proportion of increased output.

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28
Q

Interdependent

A

The decisions made by one firm directly impacts another firm.

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29
Q

Internal economies of scale

A

Advantages enjoyed by the firm independent of economic activity within other firms or the industry.

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30
Q

Limit Pricing

A

When a firm intentionally lowers its prices to prevent new firms from entering the market.

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31
Q

Loss

A

When Total Revenue < Total Costs

32
Q

Marginal Cost

A

The additional cost of producing one extra unit of good.

33
Q

Marginal Revenue

A

The additional revenue gained by selling one extra unit of good.

34
Q

Maximum Wage

A

A ceiling Wage that people cannot ear above.

35
Q

Minimum Efficient Scale

A

The minimum amount of output required to fully exploit economies of scale.

36
Q

Minimum Wage

A

A floor wage in which people cannot earn below.

37
Q

Monopolistic Competition

A

Large number of buyers and sellers who are relatively small and act independently with Non-homogenous products.

38
Q

Monopoly

A

A single seller in the market

39
Q

Monopsony

A

A single buyer in the market

40
Q

N-firm concentration ratio

A

The percentage of market share held by the biggest ‘n’ firms.

41
Q

Nationalisation

A

When a private firm or industry is brought under government control.

42
Q

Natural Monopoly

A

When it is more efficient for there to be only one seller in the market in order to fully exploit economies of scale.

43
Q

Non collusive Oligopoly

A

When firms in an oligopoly do not make agreements but compete.

44
Q

Non price competition

A

When firms compete on factors other than price eg. Quality, brand loyalty, efficiency.

45
Q

Normal Profit

A

(TC =TR) When a firm makes only enough to cover opportunity cost.

46
Q

Not for Profit Businesses

A

When firms are run in order to maximise social welfare.

47
Q

Occupational mobility of labour

A

The ease and speed at which labour can move from one type of job to another.

48
Q

Oligopoly

A

When a few independent firms dominate the market.

49
Q

Organic Growth

A

When a firm grows by increasing their output.

50
Q

Overt collusion

A

When firms makes a formal agreement to collide (eg. Cartel)

51
Q

Perfect competition

A

A market with homogenous products, no barriers to entry or exit, many buyers and sellers and perfect information.

52
Q

Perfectly contestable market

A

A market with no barriers to entry or exit and new entrants can equally compete with incumbent firms.

53
Q

Predatory Pricing

A

Where a large firm is challenged by a smaller competing firm so they lower prices, forcing the smaller firm out of the market due to increased losses.

54
Q

Price leadership

A

Where one firm sets prices and other firms follow in order to prevent a price war.

55
Q

Price Wars

A

Where firms continuously drive down the price leading to losses and forcing firms out of the market.

56
Q

Principal Agent Problem

A

Where the agent makes decisions based on the principal which should be made to maximise benefits of the principal. However there is temptation for the agent to maximise their own benefits.

57
Q

Private sector

A

Part of the economy that is owned and by individuals.

58
Q

Privatisation

A

When a market or industry is deregulated and ownership is transferred from the government to the private sector.

59
Q

Productive efficiency

A

When resources are used to maximise output at the lowest possible cost. (MC = AC)

60
Q

Profit maximisation

A

Where MC = MR. Where firms produce at a point which derives the most profit.

61
Q

Profit Satisficing

A

When a firm produced enough to satisfy shareholders.

62
Q

Public Sector

A

The part of the economy that is owned and operated by the government (usually for areas which are under-provided by the free market)

63
Q

Regulatory Capture

A

When.regulators empathise with a firm, removing impartial judgment and weakens their ability to regulate.

64
Q

Revenue Maximisation

A

When a firm operates where MR = 0. The point which drives the greatest revenue.

65
Q

Sales Maxmisation

A

The point at which a firm can sell as many of the their goods as possible without making a loss (AR = AC)

66
Q

Static Efficiency

A

The level of efficiency at a certain point in time.

67
Q

Sunk Costs

A

Costs that cannot be recovered once they’ve been spent.

68
Q

Supernormal Profits

A

The profit above normal profit. (TR > TC

69
Q

Tacit Collusion

A

Collusion with no formal agreement (eg. Price leadership)

70
Q

Second Degree Price Discrimination

A

When firms give price discounts based on bulk purchasing.

71
Q

Third Degree Price discrimination

A

When a firm offers discounts based on the different consumer groups (eg. train tickets)

72
Q

Total Cost

A

Variable costs + Fixed costs

73
Q

Total revenue

A

Price level x Quantity sold

74
Q

Variable cost

A

Costs which change with output

75
Q

Vertical Integration

A

When a firm merges with another firm in the same industry but a different stage of the production process.

76
Q

X-inefficiency

A

When a firm produces at a cost above the AC curve.

Economics DEFINITIONS (2 decks)

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