Economics Unit 3 Edexcel Definitions

All the definitions that have come up in all the past papers, lifted from mark schemes 

Monopoly
25% of the market share, one seller in the market
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Role of Competition Comission
increase the level of competition, prevent anti-competitive behaviour
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Long run
All costs are variable in the long run
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Revenue maximisation
MR=0
4 of 51
Profit
TR -TC
5 of 51
Role of Ofwat/Ofcom/Ofgem
to promote consumer interests and consumer welfare (e.g. better quality service) they can levy fines
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Market Share
% of a market sales controlled by a firm
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Tacit collusion
firms co-operate but not formally, it is illegal, involves oligopolies acting interdependently
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Game theory (dominant strategy)
one firms make a profit at the expense of another
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PFI/PPP
Obtaining private funds for public sector projects that are rented to the gov. e.g. enables hospitals to be built earlier than previously thought possible, private sector more efficient, opportunity cost
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horizontal merger
firms are at the same stage of production process gaining economies of scale
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constestability
low sunk costs, low batters to entry or exit
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monopsony
single buyer and many seller, allow commercial economies of scale, increases profits will or pass on lower prices to consumers
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AVC
VC/Q - dependent on output e.g. raw materials, cost of electricity
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Diversification
widening of product range outside current areas of specialism
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conglomerete merger
merger of two firms in different markets, application to question + little cross-over
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monopolistic
slightly differentiated products, low barriers, price makers due to downward sloping D curve
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government intervention in markets
attempts to retain competition, retain jobs, keep investment within a country, make collusion less likely or macro arguments e.g. protect exports for BoP
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backwards vertical integration
production at different stages and moving closer to raw materials + application to question, benefits include control of supplies, prevent other firms from buying raw material, cheaper materials, capture profits
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Profit max
MC=MR
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Shut down
AVC=AR
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Prevent shut down if...
contributing to FC
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FC
independent of output e.g. rent
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downward sloping D curve
monopolist + monopolistic, price setting power
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horizontal D curve
perfectly elastic, price takers
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price discrimination
same product charged at different price for different people, conditions: different PEDS, large market share, no arbitrage
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demerger
firms splits into seperate firms e.g. avoid attention of competition authorities, lowers range of functions in a business reducing overall costs
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diseconomies of scale
lack of synergy, culture clash, communication problems
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fine
deterrent or punishment to other companies for adopting mal practice
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PED
% change in price/% change in demand
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Satisficing
making enough profit to survive, keep shareholders happy (identify a stakeholder)
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sales maximisation
AC=AR
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Euro Competition comission
proxy competitor
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allocatively efficiencent
MC=P
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productively efficient
output at lowest point of AC curve
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dynamic efficiency
over time
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cartel
an agreement between firms to operate together (individual firms act as a single farm in decision making)
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duopoly
2 firms control the market
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concentration ratio
the proportion of the market controlled by the largest 'n' firms
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marginal profit
the increase in profit when one more unit is sold
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performance targetting
a goal set by regulator for firms to achieve, proxy competitor, fines
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patent
legal protection of an idea
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economic efficiency
increased output from the same amount of inputs (MC=P)
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predatory pricing
losses made in the short run to force new firms out, shut down price, illegal
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limit pricing
deters new entrants
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monopoly POWER
firm is the price setter
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sales max
selling as much as possible without making a loss
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normal profit
just enough profits to keep resources at current use for limit pricing, to remove competition, gain loyalty
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diseconomies of scale
long run average costs increase
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x-inefficiency
lack of competition means costs are higher than they would be with competition e.g. satisficing profits, organisational slack, rising average costs of labour (diminishing returns), laziness
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diminishing returns
there is at least 1 factor fixed, MC rises as more of the factor is added e.g. adding more tea leaf pickers in a firm will not add much to output
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Other cards in this set

Card 2

Front

increase the level of competition, prevent anti-competitive behaviour

Back

Role of Competition Comission

Card 3

Front

All costs are variable in the long run

Back

Preview of the back of card 3

Card 4

Front

MR=0

Back

Preview of the back of card 4

Card 5

Front

TR -TC

Back

Preview of the back of card 5
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