Economics Theme 4

achieved when resources are used to yield the maximum benefit to everyone

occurs when one party knows more about a product than another

occur when start-up costs make it difficult for new firms to enter a market

characterised by easy entry

affect the economy by influencing AD

over-produced by the free market, above social optimum

reducing regulations that restrict business practises

taken at the source and goes directly to the govt e.g., income tax

to third parties who is neither the producer nor consumer

govt intervention in the free market makes things worse

added onto prices and go to the govt through a seller e.g., VAT

designed to control market forces for political reasons

additional cost from producing one extra unit of output

the additional revenue from selling one more unit of output

when a market does not efficiently allocate resources to achieve the greatest possible consumer satisfation

can be provided by the private sector, but the quantity that the free market provides is lower than the social optimum

impossible to prevent people who have not paid for a good from consuming it e.g., street lighting

if one person consumes a good there is no less for anyone else

a market where products are homogenous, only normal profit can be obtained

transfering production to the private sector

maximises the effective use of resources

takes a greater percentage of income away from richer people

one that the free market will not provide at all, no incentive for a producer to supply it because they cannot make a profit

legal and other rules that apply to firms, may come from govts, the EU or trade associations

when two objectives cannot both be achieved, more of one means less of the other (PPF e.g., capital vs consumer goods)

25% of the market share

when the most efficient scale of production is a monopoly because more than one producer/supplier would involve a wasteful allocation of resources e.g., railways

when a concentration ratio shows a small number of firms in a market account for over 60% of it

the approach with which a business decides on setting price for its products/services (influenced by objectives)

when a firm sets a low price to help establish market share

when a firm releases a new product it initially sets a high price to take advantage of inelastic demand (e.g., new mobile phones)

selling price below costs to force competitors out of the market, is illegal

amount of profit required for firms to stay in business

measures the extent to which a market is dominated by a few firms

the understanding between competing businesses, set similar prices and focus on non-price competition

the cost of producing one more unit of output

the additional revenue that comes from selling one more unit of output

the revenue from each unit sold that goes towards fixed costs i.e., minus VC

minimising production costs by using the least quantity of resources, MC=AC

using resources to meet consumer needs and respond to changes in demand, MC=AR

when there is an inefficient allocation of resources, some are being wasted (costs could be lower and more consumer wants could be met)

an agreement within a group of firms to reduce competition, illegal, fix price and quantity suppliede

two or more firms making an agreement to follow a joint strategy

any action a business takes to prevent competition

a public authority or gov agency responsible for controlling business activity and promoting competition e.g., CMA

can be provided by the public and private sectors, the quantity provided by the free market is below the socially optimal level

one that the free market will not provide at all because it is impossible to make a profit or prevent free riders

over-produced by the free market above the socially optimal level, have negative externalities

unemployed lack skills to fill job vacancies

laws passed by gov

rules around what firms can and cannot do, mostly imposed by gov, but some industries self-regulate

the maximum output that can be produced when all available resources (FofP) are fully employed i.e., the vertical part of the LRAS curve

change in real GDP/change in J or 1/(1-MPC)

interest rates at which the BofE lends to high street banks

asset purchases i.e., BofE buys gov bonds to provide finance for increase G

buying a certain quantity of goods/foreign currency at a price agreed today, can alleviate uncertainty

when a bank has no incentive to minimise risk because they will be bailed out by the gov or central bank to protect consumers