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