Economics MICRO key words

Positive statement
an objective statemnet that CAN BE TESTED against the facts to be decalred either true or false.
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Normative Statement
a SUBJECTIVE OPINION,or value judgetment, that cannot be declared true or false.
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Factor of Production (FoP)
a Country's productive economic resources,divided into Land, Labour, Capital and Enterprise.
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basic economic problem
scare economic resources compared to society's unlimted wants and needs
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Opportunity cost
the cost of the next best alternative that you give up when you make a choice
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Production possibility curve/frontier
a diagram which shows the maximum possible output combinations of two goods in an economy, assuming full employment of efficent resources
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Economic Growth
an increase in the productive capacity of an economy over time
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Productive Efficency
When maximum output is produced from the available FoP and when it is not pssoible to produce more of one good or service without producing less of another
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Allocative Efficency
when an economy's FoP are used to produce a combinations of goods and services that have the biggest welfare gain to society.
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the amount of satisfaction ot benefit a consumer gains from consuming a good or service
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Rational Consumer
an assumption of tradional economics that consumers act in sucha way as to maximise utility when they spend money on goods and services
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Marginal Utility
the satisfaction gained from consuming an ADDITIONAL unit of a good or service
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Diminishing Marginal Utility
As individuals consume more units of a good or service the addition unit of satisfaction gives a successively smaller increase in total satisfaction
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Asymmetric Information
A source of information failure where one economic agent knows more information than the other
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Bounded rationaility
When people try to behave rationally but they are restricted by factors such as lack of time to make a decison.
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Bounded self control
whne individulas lack self-discipline to see their rational good intentions through
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Rules of thumb
Thinking shortcuts, or informed guesses that individulas use to make decisions in order to save time and effort
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the tendency of individulas to rely on particular pieces of information when making a decsion between diffrent goods or services
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Availability bias
when people make a judgemnet about the probability of events by recalling recent instances.
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Social norms
individuals are motivated to do the right thing, even if this means paying more for a good or service.
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Choice architecture
influencing consumer choices by the way they are presnted e.g countries and governments that require you to opt out of organ donations instead to in, generally have a higher percentage of population willing to donate.
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influencing consumer choices by the way words and number are used e.g presenting life insurance as 'less than £3 a day' rather than £1,000 a year.
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influencing consumer behaviour via the use of gentle suggestions and postive reinforcement e.g fice a day campaign
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Default choice
influencing consumer behaviour by setting socailly describle option as default e.g oragn donation default option is to opt in.
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Mandated choice
where people are legally required to make a choice e.g organ donation as part of application for passport or driving licence
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Restricted Choice
giving consumers a limited number of options when making a choice
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Cross elasticity of demand
the responsiveness of deamd for a product following the change in proice of ANOTHER PRODUCT
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Price elasticity of supply
the respovinessness of the quanity supplied of a good or service to a change in price
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Market disequilibrium
a situation where the quantity deamanded does not equal the quantity supplied
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Joint Demand
goods than are deamanded together i.e complementary goods
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Joint Supply
when the production of one good leads to the production of another good e.g beef and leather, both arising from cattle farming
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Composite Demand
whan a good is deamanded for more than one distinct use e.g People may demand wheat for producing bread, biofuels or feeding livestock
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Derved demand
when a particular good or factor of production is necessary in the production of another good or service e.g incresed deamnd for health care creates a increase demand for doctors and nurses
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the total output of goods and services produced by an indiviual firm or country
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a measuremnet of rate of proction by one or more factors of production e.g output per unit of labour
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Labour productivity
output per worker per unit of time
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when a Individual worker, firm, region or country produces a limited range of goods and services
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Division of labour
specailistion at the level of an individual worker
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where one thing is traded for something else e.g an hours work is given for a set rate of pay
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Short run
a period of time in which at least one factor of production is fixed
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Long run
a period of time over which all factors of production can be varied
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Fixed cost
costs of production that do not vary with level of output (in the short run) e.g rent, insurance
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Variable cost
costs of production that vary with level of output e.g raw materials, distribution costs, fuel of delivery vehicles
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Total cost
fixed costs + variable costs at a given level of output
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Average fixed cost
total cost of production divided by number of units of output
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Marginal cost
the addition to a firms cost of making one extra unit of output
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The law of dimishing returns
when additional units of varibale factors of production are added to a fixed factor, marginal output or product will eventually decrease
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Returns to scale
the reationship between increases in the quantity of a firm's inputs and the proportional chnage in output
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Increasing returns to scale
where an increase in quanity of a firm's inputs leads to a proportinally larger increase in output
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constant returns to scale
where an increase in the quantity of a firms leads to a proportially indentical change in output
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Decreasing returns to scale
where an increase in the quantity of a firm's inputs produces a poroptially smaller change in output.
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Economies of scale
the reduction in average total costs a firm experiences by increasing output in the long run
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Internal economies of scale
reductions in long-run average costs arising from growth of the firm
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External economies of scale
reductions in long-run avaerage costs arising from growth of an industy in whih a firm operates
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Diseconomies of scale
increases in average total costs that firms may experince by increasing output in the long run
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Minimum efficient scale
the lowest level of output at which total average costs of production are minimised
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Total revenue
the money a firm receives from selling its output, calculated by price x quantity sold
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average revenue
total revenue divided by the units of output. equal to price in a firm that sells one product at a fixed price
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Marginal revenue
the additonal to a firm's total revenue from selling an additional unit of output
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the diffrence between total revenues and total costs
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the creation of a production or process
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new products and production processes that are developed into marketable goods or services
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Creative destruction
where technological change leeds to then development of new 'disruptive' products which render existing products obsolete
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Perfect competion
a market structure that has a large number of buyers and sellers who have perfect imformation, homogenous products and low/no barriers to entry and exist
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imperfect competion
any market structure that is not perfect competion
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Pure monopoly
when only one firm supplies to the market
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Profit maximisation
when a firm seeks to make the largest postive diffrence between total revunes and total costs
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Divorce of ownership and control
the separtion that exsits between owners of a firm (shareholders) and directiors/mangers in large companies
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makind do with a satisfactorty, sub-optimal level of profit
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price taker
a firm that is unable to influence the ruling market price, thus has to accept it
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static efficiency
efficiency measured at a point in time, comprising of productive effuciency and allocative efficiency
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monopolistic competition
a form of imperfect competion with a large number of firms producing slightly differneated products
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a market structure dominated by a small number of powerful firms
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concentration ratio
a measurement of how concentrated a market is-the total market share held by largest firms in the market
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a collusive agreemnet amoung a group of oligopoly firms to fix prices and/or output between themselves
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tacit collusion
a collusive relationship between firms without any formal agreemnet being made
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overt collusion
a collusive agreement between firms involving an open agrrement
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Monoploy power
the power of a firm to act as a price marker
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Price marker
a firm with the power to set the rulling market price
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barrier to entry
any feture of a market that makes it difficult or impossible for new firms to enter
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product differenation
uisng advertising or product design to make a product seem diffrent from those of competitors
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sunk costs
cpsts that cannot be easily recovered if a firm is unsuccessful in market and has to exist e.g infrasture
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concentrated markets
a market dominated by a small number of firms
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the lack of willingness of firms with monoploy power to control their costs of production
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Natural monoploy
a market where a single firm can benefit from continous economies of scale
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Dynamic efficiency
improvemnets in productive effciency over time
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price war
where firms in a industry repeatdly cut prices below those of competiors in order to win market share
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non-price competion
price on the basis of product features other than price, such as quality, adversting or after-sale service
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contestable market
a market with freedom of entry and exist
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'hit and run' competition
in a constestable market, where new entrants take a share of the super normal profit and then exist the industry
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Marginal revenue productivity
the addition to a firms's revenue from employing one more unit of FoP usually labour
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Marginal Physical Product
the addition to output from employing an addition unit of FoP, usually labour
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Elasticity of demand for labour
a measure of the responsiveness in quantity of labour demanded following a change in wage rate
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Elasticity of supply of labour
a measure of the resposiveness of the quantity of labour supplied following a change in the wage rate
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Wage diffrentials
diffrences in wages arising between individulas, occuptions, industries and regions
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a market where there is a single dominat buyer, such as the governemnt and state school teachers
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Trade union
a group of workers that bargins collcetively with employes to increase memeber wages, or improves general working conditions
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National Minimum Wage
a statutory minimum wage used to increase the eranings of the low paid
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Negative discrimination in the labour market
where employmers treat a specific group of worker group of workers less favorably than others in terms of pay and employment levels
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Postive discrimination in the labour market
where employers treat specific group of workers more favourably than others in terms of pay and employment levels
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flow of money to a FoP, usually labour
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A stock of valuables assests such as property or shares
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Trickle down
a free market view that poorer members of society will benefit from high earners and the realtively wealthy e.g through job opportunities
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Rationing function
increasing the price rations demand to thoses most able to affort good or service
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Signalling function
prices provide important information to market market paricipants
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Incentive function
prices create an incentive for market participants to change actions e.g if price is high and therfore profits are high it would act as an incentive for supply to increase
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Allocative function
the function of prices that acts to divert rescources to where return can be maximised
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Market failure
when the free market leads to a misallocation of rescources in the economy
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Complete market failure
when the free market fails to create a good or service, also called a missing market
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Partial market faillure
when a market for a good or service exists, but it is consumed or produced in quantities that do not maximise economic welfare
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public good
a good that is non-excludable and non-rival in CONSUMPTION.
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where it is not possible to prevent non-paying consumers from consuming a good e.g once a lighthouse has emitted a beam of light, all ships in the vicinity can use this light to avoid rocks and other hazards
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where one persons enjoyment of a good does not dimish another persons enjoymnet of the good
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private good
a good that is rivala nd excludable in CONSUMPTION
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Quasi-Public good
a good that exhibits some, but not all of the charactertics of a public good e.g it is non-rival but not non-excludable
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a knock-on effectof a economic transcation on a third party
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Postive externaility
a postive knock-on effect also know as a external benefit
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Private cost
the cost to am indivaul producer involved in market transcation
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social cost
the total of private cost plus external cost of an economic transaction
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socail benefit
the total of private benfit plus external benfit of an economic transcation
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Private benefit
the beenfit to an indiviual consumer involved in a market transcation
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Negative externaility
a negative knock on effct of an economic transcation upon third parties, also know as an external cost
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information faliure
a source of market failure where market participants do not have neough information to be able to make a effective judgement about the 'correct' levels of consumption and production of a good
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property rights
the legal rights of ownership and use of an economic rescource
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tragedy of the commons
the over use or exploitation of resources such as the ocean or the atmosphere that are not owned by individuals or organistions
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Merit good
a good that would be under consumed in the free market
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De merit good
a good that would be over consumed in a free market
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Occupational immobility
a source of factor immobility that mean workers find it difficult to move between occuptions for reasons of lack of desirable skills
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Geographical immobility
a source of factor immobility that means wokers find it difficult to move locations to where jobs are available for reasons such as lack of affortable housing
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the notion of fairness in society
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Indirect tax
a tax placed on spending, sometimes used to reduce consumption of a demerit good e.g tabbacco duties
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a payment made to producers to enourage increased production of a good or service
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maximum price
a price ceiling above which prices are not permitted
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rules or laws used to control and restrict the actions of economic agents in order to reduce market failure
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pollution permit
the right to use or exploit an economic resource to a specfic degree e.g fishing permit or premits to realse co2
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competion policy
government policy which aims to make markets more competive
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when two or more firms willingly join together
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when two or more firms unwillingly join together
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public ownership
government ownership of firms and industries or other assets
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thetransfer of assets from the private sector to the public sector
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the sale of government ownered assests to the private sector
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regulatory capture
when the regulatory bodies set up to oversee the behaviour of privatised monoploies come to be unduly influenced by the firms that they monitor
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the removal of rules and regualtions in order to increase efficiency within a market
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Government failiure
when governmnet intervention results in a market reducation in oveall welfare
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Other cards in this set

Card 2


a SUBJECTIVE OPINION,or value judgetment, that cannot be declared true or false.


Normative Statement

Card 3


a Country's productive economic resources,divided into Land, Labour, Capital and Enterprise.


Preview of the back of card 3

Card 4


scare economic resources compared to society's unlimted wants and needs


Preview of the back of card 4

Card 5


the cost of the next best alternative that you give up when you make a choice


Preview of the back of card 5
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