Economics

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  • Created by: Lola
  • Created on: 09-02-13 07:27
Productive Efficiency
Where goods are produced at the minimum possible average cost.
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Allocative Efficiency
Where resources are used to produce what consumers actually want to buy i.e. where resources are allocated such that no consumer could be made better off without another consumer becoming worse off.
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Dynamic Efficiency
Where development of new products and harnessing of new technology is rapid over time.
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X - Inefficiency
The rise in average costs when a firm with monopoly power gets complacent, comfortable, about facing limited competition in a market.
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Fixed Cost (FC)
A cost which is independent of output in the short run. It does not vary with output.
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Variable Cost (VC)
A cost which is related to output produced in the short run.
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Marginal Cost (MC)
The addition to total cost from producing an extra unit of output.
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Law of Diminishing (Marginal) Returns
The fall in marginal product as additional units of the variable factor ofproduction are added to fixed factors.
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Average Cost (AC)
The cost per unit of output.
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Average Revenue (AR)
The revenue per unit of output.
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Marginal Revenue (MR)
The addition to total revenue from producing an extra unit of output.
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Normal Profit (NP)
The minimum (accounting) profit which the entrepreneur needs, to stay in long term production.
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Super Normal Profit (SNP)
Profit in excess of normal profit.
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Short Run (SR)
Period of time when at least one factor of production is fixed.
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Long Run (LR)
Period of time when all factors of production are variable.
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Shut Down Point
Where revenue covers variable costs only (with no contribution to fixed costs)
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Economies of Scale
The gains in efficiency (fall in unit costs) from expanding the scale of production (i.e. from expanding all factors of production in the long run)
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Diseconomies of Scale
The fall in efficiency (rise in unit costs) from expaning the scale of production (i.e. from expanding all factors of production in the long run)
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Profit Maximisation
Price and output are chosen to maximise supernormal profit
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Revenue Maximisation
Price and output are chosen to maximise total revenue
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Sales Maximisation
Price and output are chosen to maximise sales volume (subject to earning a minimum profit)
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Satisficing
Managers aim to make a satisfactory profit (anything at or above minimum level)
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Perfect Competition
Market structure where there are very many buyers and sellers such that no individual can buy or sell at any price other than the 'going price'
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Monopoly
A single seller in the market or industry. (Competition Commission criteria: firm with over 25% market share)
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Monopsony
Single buyer in a market
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Concentration Ratio
The market share of the largest (specified) number of firms in an industry.
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Monopolistic Competition
An industry with a large number of sellers, each selling goods which are close but not perfect substitutes.
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Oligopoly
A market dominated by few firms.
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Price Discrimination
Where a firm sells identical products at different prices to different buyers for reasons other than differing cost of supply.
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Game Theory
Theories where one participants behaviour is directly dependent on another's behaviour.
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Collusion
Where firms agree not to compete on price
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Price leadership
When a dominant firm sets a price for rivals to copy through an implicit collusive understanding
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Kinked Demand curve
Demand curve facing an oligopolist which is relatively price elasticl if price is raised but relativley price inelastic if price is reduced.
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Predatory Pricing
A short run strategy where a firm undercuts rivals on price to below cost (likely to initiate a price war)
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Limit Pricing
Where existing firms attempt to prevent new entry by pricing low so that new entrants will not make normal profits.
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Cost Plus Pricing
Where firms set price at average cost plus a profit margin, without explicit reference to estimated demand curve
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Non Price Competition
Where firms attempt to make more profit without cutting price through; branding, research and development, product diversification
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Contestable Market
An industry where there are no significant barriers to entry or exit (no sunk costs)
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Sunk Cost
A cost which cannot be recouped/recovered on exiting the industry, e.g. advertising
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Merger
Joining of two previously seperate firms into one.
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Horizontal Merger
Same industry, same stage of production
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Vertical Merger
Same industry, different stage of production
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Vertical Backward Merger
Buying supplier
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Vertical Forward Merger
Buying retailer
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Conglomerate Merger
Unrelated industries
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Lateral Merger
Related industries
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Competition Policy
Government efforts to ensure firms do not exploit monopoly power. UK firms are subject to investigation by the UK C.C. who can investigate monopolies - firms over 25% market share, mergers and anticompetitive practices like collusion.
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Privatisation (broad definition)
The increased use of market forces in markets previously dominated by state planning
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Privatisation (narrow definition)
The sale of state owned industries to the private sector
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Regulator
Government agent responsible for setting maximum prices and ensuring against abuse of monopoly power by those companies who face limited competition in product markets.
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Regulatory Capture
Where a regulated firm achieves softer regulation.
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Other cards in this set

Card 2

Front

Allocative Efficiency

Back

Where resources are used to produce what consumers actually want to buy i.e. where resources are allocated such that no consumer could be made better off without another consumer becoming worse off.

Card 3

Front

Dynamic Efficiency

Back

Preview of the front of card 3

Card 4

Front

X - Inefficiency

Back

Preview of the front of card 4

Card 5

Front

Fixed Cost (FC)

Back

Preview of the front of card 5
View more cards

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