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Edexcel A Level Economics > Theme 3 > Flashcards

Theme 3 Flashcards

1
Q

Allocative efficiency

A

When resources are allocated to the best
interests of society, where there is
maximum social welfare and maximum
utility; P=MC

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2
Q

Average cost/average total cost

AC/ATC

A

The cost of production per unit

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3
Q

Average revenue

A

The price each unit is sold for

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4
Q

Cartels

A

A formal collusive agreement where
firms enter into an agreement to mutually
set prices

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5
Q

Collusion

A

Occurs when firms agree to work
together, for example by setting a price
or fixing the quantity they produce

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6
Q

Competition policy

A

Government action to increase

competition in markets

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7
Q

Competitive tendering

A

When the government contracts out the
provision of a good or service and invites
firms to bid for the contract

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8
Q

Conglomerate integration

A

The merger of firms with no common

connection

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9
Q

Constant returns to scale

A

Output increases by the same proportion

that the inputs increase by

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10
Q

Contestable market

A

When there is the threat of new entrants
into the market, forcing firms to be
efficient

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11
Q

Decreasing returns to scale

A

An increase in inputs by a certain
proportion will lead to output increasing
by a smaller proportion

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12
Q

Demergers

A

A single business is broken into two or
more businesses to operate on their
own, to be sold or to be dissolved

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13
Q

Deregulation

A

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

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14
Q

Derived demand

A

The demand for one good is linked to the

demand for a related good

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15
Q

Diminishing marginal productivity

A

If a variable factor is increased when another
factor is fixed, there will come a point when
each extra unit of the variable factor will
produce less extra output than the previous
unit; after a certain point, marginal output falls

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16
Q

Diseconomies of scale

A

The disadvantages that arise in large
businesses that reduce efficiency and
cause average costs to rise

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17
Q

Firms are owned by shareholders, who
have little say in the day to day running of
the business, and controlled by managers;
this leads to the principal-agent problem

A

Divorce of ownership from control

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18
Q

Dynamic efficiency

A

Efficiency in the long run; concerned with
new technology and increases in
productivity which causes efficiency to
increase over a period of time

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19
Q

Economies of scale

A

The advantages of large scale
production that enable a large business
to produce at a lower average cost than
a smaller business

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20
Q

External economies of scale

A

An advantage which arises from the
growth of the industry within which the
firm operates, independent of the firm
itself

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21
Q

Fixed cost

A

Costs which do not vary with output

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22
Q

Game theory

A

Used to predict the outcome of a
decision made by one firm, which has
incomplete information about the other
firm

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23
Q

Geographical mobility of labour

A

The ease and speed at which labour can

move from one area to another

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24
Q

Horizontal integration

A

The merger of firms in the same industry

at the same stage of production

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25
Q

Increasing returns to scale

A

An increase in inputs by a certain
proportion will lead to an increase in
output by a larger proportion

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26
Q

Interdependent

A

The actions of one firm directly affects

another firm

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27
Q

Internal economies of scale

A

An advantage that a firm is able to enjoy
because of growth in the firm,
independent of anything happening to
other firms or the industry in general

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28
Q

Limit pricing

A

When firms set prices low in order to
prevent new entrants; used in
contestable markets

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29
Q

Loss

A

When revenue does not cover costs

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30
Q

Marginal cost

A

The additional cost of producing one

extra unit of good

31
Q

Marginal revenue

A

The additional revenue gained by selling

one extra unit of good

32
Q

Maximum wage

A

A ceiling wage which people cannot earn above

33
Q

Minimum efficient scale

A

The lowest level of output necessary to

fully exploit economies of scale

34
Q

Minimum wage

A

A floor wage which people cannot earn

below

35
Q

Monopolistic competition

A

Where there are a large number of
buyers and sellers who are relatively
small and act independently, selling
non-homogenous goods

36
Q

Monopoly

A

A single seller in the market

37
Q

Monopsony

A

A single buyer in the market

38
Q

N-firm concentration ratio

A

The percentage of market share held by

the ‘n’ biggest firms

39
Q

Nationalisation

A

When a private sector company or
industry is brought under state control, to
be owned and managed by the
government

40
Q

Natural monopoly

A

Where economies of scale are so large that
not even a single producer is able to fully
exploit them; it is more efficient for there to
be a monopoly than many sellers

41
Q

Non-collusive oligopoly

A

When firms in an oligopoly compete
against each other, rather than making
agreements to reduce competition

42
Q

Non-price competition

A 
When firms compete on factors other than
price, for example customer service or
quality; they aim to increase the loyalty to
the brand which makes demand more
inelastic
43
Q

Normal Profit

A

The minimum reward required to keep
entrepreneurs supplying their enterprise,
the return sufficient to keep the factors of
production committed to the business;
TC=TR

44
Q

Not-for-profit business

A

Where firms are run in order to maximise
social welfare and help individuals and
groups; any profit they do make is used
to support their aims

45
Q

Occupational mobility of labour

A

The ease and speed at which labour can

move from one type of job to another

46
Q

Oligopoly

A

Where a few firms dominate the market
and have the majority of market share,
they act interdependently

47
Q

Organic growth

A

When firms grow by increasing their

output

48
Q

Overt collusion

A

Collusion where firms come to a formal

agreement, for example a cartel

49
Q

Perfect competition

A

A market with many buyers and sellers
selling homogenous goods with perfect
information and freedom of entry and exit

50
Q

Perfectly contestable market

A

A market with no barriers to entry, where
a new firm can easily enter and compete
against incumbent firms completely
equally

51
Q

Predatory pricing

A

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 the market

52
Q

Price leadership

A

Where one firm sets prices and other
firms tend to follow this firm as they are
fearful of engaging in a price war

53
Q

Price wars

A

When firms continuously drive prices
down to the point where they are
frequently making losses and firms are
forced to leave

54
Q

Principal-agent problem

A

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

55
Q

Private sector

A

The part of the economy that is owned
and run by individuals or groups of
individuals

56
Q

Privatisation

A

The sale of government equity in
nationalised industries or other firms to
private investors

57
Q

Productive efficiency

A

When resources are used to give the
maximum possible output at the lowest
possible cost; MC=AC

58
Q

Profit maximisation

A

When firms produce at a point which

derives the greatest profit; MC=MR

59
Q

Profit satisficing

A

When a firm earn just enough profit to

keep its shareholders happy

60
Q

Public sector

A

The part of the economy that is owned
and controlled by local or central
government

61
Q

Regulatory capture

A

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

62
Q

Revenue maximisation

A

When firms produce at a point which

derives the greatest revenue; MR=0

63
Q

Sales maximisation

A

When firms produce at a point where
they sell as many of their goods and
services as possible without making a
loss; AR=AC

64
Q

Static efficiency

A

The level of efficiency at one point in

time

65
Q

Sunk costs

A

Costs that can’t be recovered once they

have been spent

66
Q

Supernormal profit

A

The profit above normal profit, TR>TC

67
Q

Tacit collusion

A

Collusion where there is no formal

agreement, such as price leadership

68
Q

Third degree price discrimination

A

When monopolists charge different
prices to different groups for the same
good or service

69
Q

Total cost (TC)

A

The cost to produce a given level of

output

70
Q

Total revenue (TR)

A

Revenue generated from the sale of a

given level of output

71
Q

Variable costs

A

Costs which change with output

72
Q

Vertical integration

A

When a firm merges or takes over
another firm in the same industry, but at
a different stage of production

73
Q

X-inefficiency

A

When firms produce at a cost above the

AC curve

Edexcel A Level Economics (5 decks)

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