Theme 3 Keywords & Formulas

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  • Created by: jazimsky
  • Created on: 20-01-20 21:58
niche market
a small, specialized market for a particular product or service
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economies of scale
falling long run average cost as output increases in the long run
2 of 83
principal-agent problem
when aims of a firm's owners & controllers diverge, and policies conflict
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private sector
assets owned by individuals/groups not gov
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public sector
assets owned by society prov thru gov
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non profit organisations
private firms with non profit motive
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organic growth
growth from within thru new capital, new workers, more hours
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external growth
buying out other firms thru mergers/acquisitions
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horizontal integration
when firms merge @ same stage of production process
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vertical integration
when firms merge @ diff stages of production process
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backward vertical integration
when a firm buys another firm closer to raw material stage of production
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forward vertical integration
buying another firm in the same production process but closer to customer
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conglomerate integration/ diversification/ lateral integration
when a firm buys another completely unrelated to business
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demergers
dissolution of an earlier merger
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profit maximisation
MR=MC
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marginal revenue
the change in revenue from selling one more unit of output (MR=0)
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marginal cost
the extra cost of making one more unit of output
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marginal profit
extra profit gained from selling one more unit
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sales maximisation
when a firm sells as much as possible subject to the constraint it at least makes normal profit
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satisficing
making enough profit to satisfy shareholders so managers can aim for other objectives
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price maker
firm that has to cut price to sell more
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price taker
offers product at same price as its competition
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revenue maximisation
when a firm makes as much money possible
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law of diminishing marginal returns
as more of a variable factor is added to a fixed factor, the increase in output (or marginal product) eventually falls
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fixed factor
the factor of production which cannot be changes in SR
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marginal product
the extra output when one more factor of output is added
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economies of scale
when the average costs per unit of output decrease with the increase in scale of output being produced by a firm in the LR
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diseconomies of scale
when the average unit costs of production increase beyond a certain level of output
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managerial economies
one person at top of firms no matter what size
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financial economies
larger firms have access to wider range of credit at smaller price
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commercial economies
large firms can bulk buy from suppliers, better deals
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technical economies
doubling dimensions of any object increases volume eg. warehouse, ship, lorry
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marketing economies
as firm grows bigger, cost of advertising spread out over large no. of potential customers
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minimum efficient scale
point where average costs are at minimum
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normal profit (break-even)
the minimum necessary to keep risk-taking resources in their current uce (AC=AR or TC=TR)
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supernormal profit
profit above minimum required (TR-TC)
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loss
TC>TR
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shut down point
P=AVC
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allocative efficiency
P=MC
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productive efficiency
lowest point on average cost curve (MC=AC)
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dynamic efficiency
measures firm's ability to optimise productivity over LR by innovating, investing in human capital or taking risks
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X-inefficiency
when costs rise bc no competition/costs fall as threat of competition drives them down: little incentive to cut back bc no reward for competing well
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perfect competition
extreme: many buyers and sellers (all price takers), horizontal D of AR=MR, no barriers to entry/exit, perfect knowledge, all profit maximise
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monopolisitic competition
very close to perf comp BUT product slightly differentiated, some price setting pwr, D curve downwards sloping, many buyers and sellers (price makers)< low barriers to entry/exit, aim to max profits, small amount of brand loyalty (no strong brand nam
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oligopoly
few firms dominating the market: high conc ratios, high barriers to entry/exit, aim for profit max, downwards sloping D, BUT firms are interdependent
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concentration ratio
measures proportion of the market dominated by firms (n-firm)
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game theory
study of strategies used to make decisions
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interdependence
the actions of one agent depend on the actions of another
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pay-off matrix
simple two-firm, two-outcome model
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non-collusive behaviour
when firms act in a way that does not involve collaboration with other market players (kinked D curve)
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prisoner's dilemma
model in game theory to Q whether firms may collude or not even if best interests
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cartels
firms acting as one through agreement
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price wars
when price cutting leads to retaliation
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predatory pricing
SR measure of cutting below avg costs of production to force firms out, then raise prices back up (illegal)
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limit pricing
cutting price to point where new firms cant compete. incumbent firm can keep position LR bc lower costs (legality depends)
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price leadership
some markets dominant firm acts to change prices & others follow (eg. Barclays setting inter-bank borrowing rates)
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non price competition
eg. advertising, loyalty cards, free gifts
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overt collusion
open, easier to detect, firm messages others
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tacit collision
unspoken, harder, implicit understanding
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pure monopoly
one firm dominating market (supplies at least 25%), high barriers to entry/exit, profit maximising, downward sloping D curve
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pure monopsony
firm which is the sole buyer of resources/supplies
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contestability
the measure of ease with which firms can enter or exit the industry
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sunk costs
unrecoverable costs
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demand for labour
amount firms are willing to pay for a certain amount of workers
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derived demand
D for labour is dependent on D for final G&S produces
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supply of labour
the number of workers willing & able to work @ any given wage
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geographical immobility
the difficulty to move to diff places for work (eg. family, travel/accommodation costs)
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occupational immobility
difficulty to transfer jobs due to lack of kills/training
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participation rate
labour force ÷ total working age population
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labour force
the sum of people unemployed and employed
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National Minimum Wage
minimum firms pay workers by kaw eg. UK 2016 National Living Wage premium for +25 yr olds: sig higher than previous trend of min wages
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maximum wage
reduces rate at which top earnings move from median eg. bankers & footballers
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wage/price elasticity of demand for labour
responsiveness of demand for labour to changes in wages (-0.4 in UK). elastic is -1 to -infinity/inelastic o to -1
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wage/price elasticity of labour supply
measures responsiveness of labour supply to change in wage rate. elastic is 1 to infinity/inelastic is 0 to 1
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competition policy
the set of rules and powers used to increase competition within markets
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Private Finance Initiative (PFI)
financing major public projects through private sector funds, leasing or maintaining services. 25-30 yrs. 1992 UK intro'd
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contracting out
many govs use private sector to provide services. since 1988 local councils contracting out: reduce inefficiencies, greater choice, lower prices
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nationalisation
when private firmds are taken to public ownership eg. 2008 crisis UK gov nationalised (part) Lloyds, RBS etc
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regulatory capture
corruption of authority when regulators are 'taken in' by firm or persuaded
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unlimited liability
owners/shareholders responsible for all debts if fail financially
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limited liability
owners/shareholders not responsible for all debts if fail financially
81 of 83
public limited company
company whose shares can be sold to the public
82 of 83
average costs
total costs ÷ output
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Other cards in this set

Card 2

Front

falling long run average cost as output increases in the long run

Back

economies of scale

Card 3

Front

when aims of a firm's owners & controllers diverge, and policies conflict

Back

Preview of the back of card 3

Card 4

Front

assets owned by individuals/groups not gov

Back

Preview of the back of card 4

Card 5

Front

assets owned by society prov thru gov

Back

Preview of the back of card 5
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