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133 Cards in this Set

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What is the formula for Total costs
?
Fixed costs + Variable costs
What are Fixed costs?
Costs of production that do not vary as output changes
What are Variable costs?
Costs of production that vary with output.
What is the Short run?
Period during which fixed costs and the scale of prodution remain fixed
What is the Long run?
Period of time during which all factors become variable and the scale of output can change.
What is Marginal product?
The output added by the extra worker or unit of a factor
What is Increasing marginal returns?
Where the addition of an extra variable factor adds more output than the previous variable factor
What is the formula for Average product?
The total product divided by the number of workers
What is the Law of diminishing marginal returns?
Where increasing amounts of a variable factor are added to a fixed factor and the amount added to the total product by each additional unit of the variable factor eventually decreases
What is Optimal output?
The ideal combination of fixed and variable costs to produce the lowest average cost
What is Productive efficiency?
When a firm operates at minimum average total cost, producing the maximum output from inputs into the production process.
What are Semi-Variable Costs?
Costs which have both a fixed and variable element, e.g. landline telephone usage
What is the formula for Average fixed costs?
Total fixed costs divided by the number produced
What is the formula for Average variable costs?
Total variable costs divided the number produced
What is the formula for Average total costs?
Total cost divded by the number produced
What is marginal cost?
The cost of the extra unit of output
What are Increasing returns to scale?
Where an increase in factor inputs leads to a more than proportionate increase in outputs
What are decreasing returns to scale?
Where an increase in factor inputs leads to a less than proportionate increase in factor outputs
What are Constant returns to scale?
Where an increase in factor inputs leads to a proportional increase in factor outputs
What is the minimum Minimum efficient scale?
This corresponds to the lowest point on the long-run average total cost curve and is also known as the output of long-run productive efficiency
What are profits?
Total income or revenue for a firm is greater than total cost.
What is the formula for Total revenue?
What the firm recieves for the sale of its product = price x number sold.
What is the formula for Average revenue?
Total revenue divided by number sold.
What is marginal revenue?
The addition to total revenue from the productoin of one extra unit.
What is normal profit?
Total revenue minus total costs.
What is profit maximisation?
Where a firm chooses a level of output where marginal revenue equals margional costs.
What are supernatural profits?
A return above normal profit- a surplus payment
What are sub-normal profits?
Profit below normal which should lead to firms leaving the industry.
What is an entrepreneur?
individual who organises factors of production in order to make profit.
What is a Public limited company? (PLC)
A firm owned by a group of shareholders whose shares can be traded on the London stock exchange.
What is a corporation?
A private enterprise incorporated from the Registrar of Companies.
What is a director?
individual elected by a company's sharholders to set corporate policies.
What are perks?
Non-monetary benefits like an expensive car provided by the firm.
What are dividends?
financial return from the ownership of shares (equities) in a firm.
What are share options?
The right to buy or sell stock at an agreed price.
What are activist shareholders?
Shareholders that will clamour for greater dividends and may mobilise other shareholders to oppose the management.
What is a hostile bid?
A bid to buy shares in an attempt to gain control of the firm which is opposed by the firms directors who fear job loss.
What is satisficing?
The firm is producing satisfactory but not maximum profit, usually to appease shareholders goals.
What is a stakeholder?
Firms, organisations or individuals with an interest in the firm.
What is a carbon footprint?
The amount of greenhouse gases produced measured in terms of carbon dioxide.
What is corporate citizenship?
Indicates that organisations embrae sustainable development.
What is market share?
Percentage of the total market owned by the company.
What is market power?
When a firm has the ability to exert significant influence over the quantity of goods traded or the price at which they are sold
What is capital market discipline?
Where firms may be taken over by other firms if they appear to be making lower profits than their assets would suggest.
What is Delisting?
Refers to the practice of removing the stock of a company from a stock exchange so that investors can no longer trade shares of the stock on that exchange.
What is innovation?
Turning invention into commercial use; intorducing a new product or process.
What is a horizontal merger?
Where two firms at the same stage of production combine.
What is a vertical merger?
Where firms at different stages of production combine.
What is a conglogerate merger?
where firms with no obvious connection combine.
What is a Lateral Merger?
A Particular type of horizontal merger.
What is a price taker?
A firm that has to accept the price ruling in the market
What is the meaning of homogeneous in economics?
all products are the same irrespective of who makes them
What is the meaning of allocative efficiency?
the optimum allocation of scarce resources that best accords with the consumers' pattern of demand.
What is optimum output?
the optimum combination of fixed and variable factors that minimise ATC
What is static efficiency?
efficiency at a point in time - includes allocative and productive efficiency
What is dynamic efficiency?
efficiency over time - new products, techniques and processes which increase economic growth
what are structural performance and conduct models?
individual performance depends ultimately on the industry structure where the variables in the model are structure, conduct and performance.
What are barriers to entry?
obstacles that stop new firms entering a market
What's the meaning of X-Inefficiency?
somtimes called organisational slack, not reducing costs to their lowest level - the gap between the actual and lowest possible costs.
What are patent laws?
a grant of temporary monopoly rights over a new product
What does it mean when a firm is nationalised?
taking a firm/industry into public ownership - ownership by the state.
What is limit pricing?
Setting a price so low that other firms will not enter the industry.
What are sunk costs?
irretrievable costs that occur when a firm exits an industry.
What is a legal monopoly?
a firm with 25% or more market share
What is marginal cost pricing?
setting the price at the level of marginal cost
What is average cost pricing?
setting the price at the level of average cost
What is dead-weight loss?
reduction in consumer and producer surplus when output is restricted to less than the optimum level?
What is price discrimination?
Where an identical good/service is sold to different customers at different prices for reasons not associated with costs.
What is first-degree price discrimination?
where the discriminating firm can charge a seperate price to each individual customer
What is second-degree price discrimination?
when the discriminating firm can charge a seperate price to different groups of customer.
What is third-degree price discrimination?
When the discriminating firm can charge a different price in each country
What is an oligopoly?
Where a few large firms have the majority of the market share
What is the concentration ratio?
the proportion of the market share held by the dominant firms
What is predatory pricing?
setting a price that may bankrupt a competitor firm in order to try take it over
What is interdependance?
where actions by one firm will have an effect on the sales and revenue of other large firms in the market
What is a price war?
where firms competitively lower prices to increase their market share
What is the kinked demand curve?
A theoretical approach that endeavours to analyse the reasons for price stability in oligopoly.
What is the discontinuous marginal revenue curve?
region over which a change in marginal costs will not lead to a change in the firm's price and output levels
What is game theory?
an analysis of how games players react to changing circumstances and plan their response
What is the zero sum game theory?
where a gain by one player is matched by a loss by another player
What is collusion?
Where firms co-operate in their pricing and output policies
What is the Nash equilibium?
where the optimum strategy is to maintain current behaviour
What are restrictive agreements?
where firms collude to indulge in anti-competitive policy
What is a cartel?
a group of firms working together, or colluding.
What is a price leader?
a firm that establishes the market price that all other firms in the agreement follow
What is barometric price leadership?
A firm whose price changes are accepted as they are adroit at interpreting market conditions
What is tacit collusion?
where firms have reacher an 'agreement' as to eachother's behaviour as a result of repeated observations over time
What are menu costs?
the time and money spent by businesses in changing their prices in line with inflation
What is a contestable market?
where there is free entry and exit of other firms
What is competition policy?
methods that the UK government and EU authorities use in order to make more efficient
What are restrictive trade practises?
methods used by firms to reduce competition in a market
What is the competition commission?
A government organisation repsponsible for implementing policy in relation to monopolies.
What is definition of dominant market position?
Where a firm of group of firms working together, have a market share of 40%.
What is nationalisation?
state control of firms
What is privatisation?
sales of government owned assets to the private sector
What is deregulation?
the process of removing government controls from markets
what is a natural monopoly?
a firm that can theoretically gain continuous economics of scale and where it is thus uneconomic for more than one firm to supply the market
What are pulic-private partnerships (PPPs) ?
partnerships between the private and public sectors to provide public services
What is private financial initiative (PFI) ?
A form of public-private partnership in which private sector firms understake the bulk of the work
What is regulatory capture?
where agencies set up to regulate industries or firms can be 'captured' or influenced by the firms they are intended to oversee
What is Hit and Run entry?
where new firms enter the industry , 'cream' off some of the supernormal profits of the incumbents and then exit.
What is derived demand?
occurs when the demand for a factor of production arises from the demand for the output it produces
What is the theory of marginal production?
key theory underpinning the demand of labour
What is the marginal revenue product (MRP) ?
the value of physical addition to output arising from hiring one extra unit of a factor of production
What is the elasticity of demand for labour?
the responsiveness of quantity demanded of labour to a change in the wage rate.
What is the participation/activity rate?
the percentage of the population of working age currently in work or actively seeking work
What are monetary and non-monetary factors?
financial rewards to a particular occupation and the non-financial rewards to a particular occupation
What is net advantage?
the overall rewards in a particulat occuption, taking into account both monetary and non-monetary factors
What is the elasticity of supply for labour?
the responsiveness of quantity of labour supplied to a change in wage rate.
What is the backward-bending supply curve for labour?
the individual labour supply curve is thought to be this shape because it is assumed workers will prefer to work fewer hours as their income increases above a certain level.
What are transfer earnings?
the minimum payment needed to keep a factor of production in its present use.
What is a trade union?
an organisation of workers who join together to furter their own interests
What is trade union mark up?
the addition to wages secured by members of a trade-union, compared to what they would earn if there were no unions.
What is the definition of labour market failure?
where the free market fals to achieve an efficient allocation of resources in the labour market
What is wealth?
a stock of valuable assets
What is marketable wealth
wealth that can be transferred to others.
What is distribution of wealth?
how wealth is shared out between the population
What is income?
a flow of money to a factor of production. An individual's income may include wages and state benefits
What is distribution of income?
how income is shared ot between the factors of production.
What is the lorenz curve?
a diagrammatic representation of the distribution of income and wealth
What is the Gini co-efficient?
a statistical measure of the degree of inequality of income or wealth
What is absolute poverty?
when an individual or household's income is insufficient for them to afford basic shelter, food and clothing
What is the poverty audit?
assesment of the government's performance in eradicating poverty
What is a poverty trap?
when individuals or households are no better off following a pay increase because tax paid increases and benefits are withdrawn
What is market failure?
where the free market fails to achieve an efficient allocation of resources
What is productive inefficiency?
when firms are not producing at minimum possible average total costs.
What is allocative inefficiency?
When resources are not used to produce the goods and services produced by consumers
What is government failure?
when government intervention to correct market failure does not improve the allocation of resources or leads to worsening of the situation.
What are negative externalities?
negative spillover effects to third parties not involved with the consumption or production of the good. Social costs exceed private costs.
What is 'tragedy of the commons' ?
the over exploitation of natural resources that are now owned by single individuals or organisations
What is a pollution permit?
A right to emit a given volume of waste or pollution into the enviroment
What is a cost-benefit analysis (CBA) ?
an investment appraisal technique that takes into account all the private and external costs and benefits of an economic decision.
What is a shadow price?
a price calculated to more accurately reflect the costs and benefits to society of a good, particuarly when no market price has been previously calculated