P=MC, goods are allocated efficiently, price consumers are willing to be equals the amount they actually pay
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Assymetric Information
When one party in a transaction has more information than another about the good. Causes distrust --> Akerloff's Lemon Problem
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Basic Economic Problem
Infinite wants but scarce resources, problem is deciding who, how and which resources to dedictae to what
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Barriers To Entry & Examples
1) Factors that make it expensive for a firm to enter a market 2) Expertise, Economies of Scale, Legislation & Regulation, Sunk costs, Capital Equipment needed, Patents and R&D intensity.
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What are the rational assumptions for the economic agents?
Consumer: Aim to maximise Utilty Producers: Aim to maximise profit Governments: Aim to improve economic and social welfare
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Define Composite Demand + Example
When goods have more than one use, so that if demand( and therefore supply) increases for one, then supply for another decreases. Example: Milk can be used for cheese, yoghurts, butter etc so if increase in demand forbutter less available for cheese
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Derived Demand
Demand for a product depends on the demand for another service/good. Example: OIL!
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Consumer surplus
Difference between the total amount consumers are willing to pay and the amount they actually pay.
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Deadweight loss
Loss of producer and consumer surplus due to an inefficient level of production (caused by govt failure)
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Diminishing returns
When returns (utility, product, revenue) start to diminish as more goods are produced
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Economies of scale
Benefits from spreading costs over a larger output, as well as from being normal.
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Economies of Scope
When it is cheaper of produce a range of products as you benefit from being able to utilise one factor for both (i.e graphic designers, cleaners)
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First mover advantage
Advantages from being the firms to introduce a product to a market - loyalty, reputation, greater revenue, infrastructure already in place.
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Factor incomes
Returns & Rewards from the factor of production. Labour recieves wages, land earns rent etc
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Government failure
When government intevention results in reduced economic and social welfare or market failure
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Hedging
The process of protecting against risk. Example: Taking out a futures contract to protect against price
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Horizontal Integration & example
When a firm takes over another in the same stage of production. example: Jaguar-Land Rover merger
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Latent demand
When there is demad for a good, but consumers do not have the purchasing power
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Market Failure
When resources and allocated inefficiently
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Moral Hazard
When agents/people make choices witch external costs because it will not affect them. i.e big banks
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Define Pareto efficiency
A state in which no one can be made better off without making someone worse off. Relevancy: Oligopolies and Game theory
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Define Tragedy of the commons + Example
When there are no property rights, there is no incentive to 'take care' or 'protect' are resource which results in degradation. Example: Fish stocks and forests
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Social efficiency
MSB=MSC, socially optimum output
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Dynamic efficiency
When innovation/new methods increase output at all levels, i.e the costs curve shifts downwards.
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Rent-seeking
When firms/organisations lobby government officials to get better deals/more resources
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Define Productive efficiency and what is it called on LRAC?
Producing the most goods at the lowest cost. The lowest point on the AC curve. On a LRAC this is the minumum efficient scale.
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Price Elasticity of Demand
The responsiveness of demand to a change in price
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Subsidy
An amount of money provided to firms to reduce (fill gap) prices
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Log-Rolling
trading of favours in return for support of policy/objectives
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Other cards in this set
Card 2
Front
When one party in a transaction has more information than another about the good. Causes distrust --> Akerloff's Lemon Problem
Back
Assymetric Information
Card 3
Front
Infinite wants but scarce resources, problem is deciding who, how and which resources to dedictae to what
Back
Card 4
Front
1) Factors that make it expensive for a firm to enter a market 2) Expertise, Economies of Scale, Legislation & Regulation, Sunk costs, Capital Equipment needed, Patents and R&D intensity.
Back
Card 5
Front
Consumer: Aim to maximise Utilty Producers: Aim to maximise profit Governments: Aim to improve economic and social welfare
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