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Economics Definitions > Theme 3: Business Behaviour and the Labour Market > Flashcards

Theme 3: Business Behaviour and the Labour Market Flashcards

1
Q

Allocative efficiency

A

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

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2
Q

Asymmetric information

A

Where one party has more information than the other, leading to market failure and causing problems for regulators

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3
Q

Average cost/average total cost (AC/ATC)

A

The cost of production per unit
total costs / quantity produced

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4
Q

Average revenue (AR)

A

The price each unit is sold for
TR / quantity sold

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5
Q

Bilateral monopoly

A

Where there is only one buyer and one seller in the market

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6
Q

Cartels

A

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

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7
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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8
Q

Competition policy

A

Government action to increase competition in markets

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9
Q

Conglomerate
integration

A

The merger of firms with no common connection

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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

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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12
Q

Deregulation

A

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

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13
Q

Derived demand

A

The demand for one good is linked to the demand for a related good

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14
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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15
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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16
Q

Divorce of ownership from control

A

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

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17
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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18
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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19
Q

Fixed cost

A

Costs which do not vary with output

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20
Q

Geographical mobility of labour

A

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

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21
Q

Horizontal integration

A

The merger of firms in the same industry at the same stage of production

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22
Q

Interdependent

A

The actions of one firm directly affects another firm

23
Q

Marginal cost

A

The additional cost of producing one extra unit of good

24
Q

Marginal revenue

A

The additional revenue gained by selling one extra unit of good

25
Q

Maximum wage

A

A ceiling wage which people cannot earn above

26
Q

Minimum wage

A

A floor wage which people cannot earn below

27
Q

Monopolistic competition

A

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

28
Q

Monopoly

A

A single seller in the market

29
Q

Monopsony

A

A single buyer in the market

30
Q

N-firm concentration
ratio

A

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

31
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

32
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

33
Q

Occupational mobility of labour

A

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

34
Q

Oligopoly

A

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

35
Q

Organic growth

A

Where firms grow by increasing their output

36
Q

Perfect competition

A

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

37
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

38
Q

Price wars

A

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

39
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

40
Q

Productive efficiency

A

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

41
Q

Profit maximisation

A

When firms produce at a point which derives the greatest profit; MC=MR

42
Q

Profit satisficing

A

When a firm earn just enough profit to keep its shareholders happy

43
Q

Revenue maximisation

A

When firms produce at a point which derives the greatest revenue; MR=0

44
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

45
Q

Sunk cost

A

Costs that cannot be recovered once they have been spent

46
Q

Supernormal profit

A

The profit above normal profit, TR>TC

47
Q

Tacit collusion

A

Collusion where there is no formal agreement, such as price leadership

48
Q

Third degree price discrimination

A

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

49
Q

Total cost

A

The cost to produce a given level of output total variable costs + total fixed costs

50
Q

Total revenue

A

Revenue generated from the sale of a given level of output
price x quantity sold

51
Q

Variable cost

A

Costs which change with output

52
Q

Vertical integration

A

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

53
Q

X-inefficiency

A

When firms produce at a cost above the AC curve

Economics Definitions (6 decks)

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