Activity rate
the proportion of any given population actually in the workforce
Allocative efficiency
where the goods produced satisfy consumer preferences and maximise their welfare
Average cost
the average cost of production per unit // AVC+AFC
Average fixed cost
TFC÷Q
Average product
the quantity of output per unit of factor input // total product÷level of output
Average revenue
the average receipts per unit sold // TR÷Q
Average variable cost
TVC÷Q
Backwards vertical integration
a joining together into one firm of two or more firms where the purchaser merges with/takes over one or more of its suppliers
Barriers to entry
factors which make it difficult/impossible for firms to enter an industry and compete with existing producers
Barriers to exit
factors which make it difficult/impossible for firms to leave a market and cease production
Bilateral monopoly
when a single buyer faces a single seller in a market
Brand
a name, design, symbol or other feature that distinguishes a product from another and makes it non-homogenous
Cartel
a formal agreement between firms to limit competition in order to maximise profits
Collusion
collective agreements, be it tacit or formal, between firms that restrict competition
collusive oligopoly
a market with a high concentration ratio where a few interdependent firms cooperate (either formally or tacitly) to restrict competition
Competitive tendering
introducing competition among private sector firms which put in bids for work contracted out by public sector firms
Concentrated market
a market with a high concentration ratio
Concentration ratio
the market share of the largest firms in the industry
Conglomerate integration
a joining together into one firm of two or more firms producing unrelated products
Consumer sovereignty
exists when the economic system allocates resources totally according to consumer preference
Contestable market
a market with freedom of entry and where the costs of exit are low
Contracting out
getting private sector firms to produce goods and services then provided by the state
Creative destruction
where firms produce/create new products that replace existing products on the market
Demerger
when a firm splits into two or more independent businesses
Deregulation
the process of removing government controls from markets
Diseconomies of scale
a rise in the long run average costs of a firm as production increases
Divorce of ownership from control
when managers and directors of a business are different from the owners of a business (the shareholders)
Dominant strategy
the strategy that has the best outcome in light of the decisions of other players
Duopoly
a market with only two firms
Dynamic efficiency
where investment reduces the long run average cost curve
Economic cost
the opportunity cost of an input into the production process
Economically active
the number of workers in the workforce either in a job or unemployed
Economies of scale
a fall in long run average costs of production as output rises
Elasticity of demand for labour
responsiveness of the quantity demanded of labour to changes in the price of labour // Δ%Q or labour÷Δ%Wage rate
External economies of scale
where the average cost of a firms production falls due to growth in the size of the industry in which the firm operates
Fixed costs
costs which do not vary as the level of production changes
Forward vertical integration
a joining together into one firm of two or more firms where the supplier merges with/takes over one or more of its buyers
Game theory
the analysis of situations in which players are interdependent
Hit and run competition
when firms can enter a market at low cost attracted by high profits and then leave at low cost when profits fall
Homogenous goods
identical goods made by different firms
Horizontal integration
a joining together of two firms in the same industry at the same stage of production
Imputed cost
an economic cost which a firm does not pay for with money to another firm, but is the opportunity cost of the factors of production which the firm itself owns
Independence
where the actions of one firm has no significant impact on any other firms in the market
Interdependence
where the actions of one firm have an impact on other firms in the market
Internal economies of scale
economies of scale which arise due to growth in the scale of production within a firm
Labour force
those economically active and therefore in or seeking work
Law of diminishing marginal returns
if increasing quantities of a variable input are combined with a fixed input, eventually the marginal product and then the average product of that variable input will decline.
Limit pricing
when a firm sets a low enough pricing to deter new entrants into a market
Long run
the period of time when all factors of production can vary, as does the number of firms in the market, but the level of technology remains constant
Marginal cost
the cost of producing an extra unit of output
Marginal physical product
the physical addition to output of an extra unit of a variable factor of production
Marginal product
the addition to output produced by an extra unit of input // Δtotal output÷Δlevel of inputs
Marginal revenue product
the value of the physical addition to outputof an extra unit of a variable factor of production
Marginal revenue
the addition to total revenue of an extra unit sold // ΔTR÷ΔQ
Market concentration
the degree to which the output of a market is dominated by the largest firms
Market conduct
the behaviour of firms, eg. through pricing strategies, marketing, branding and collusion
Market share
the proportion of sales in a market taken by a firm/group of firms
Market structure
the characteristics of a market that determine the behaviour of firms in the market
Marketing mix
different elements of a marketing strategy designed to increase demand
Merger/integration
the joining together of two or more firms under common ownership
Minimum efficient scale (MES)
the lowest level of output at which long run average costs are minimised
Minimum wage
a legal minimum wage per hour that employers must pay their workers
Monopolist
a firm that controls all the output in a market
Monopolistic competition
a market structure where a large number of small firms produce non-homogenous products and where there are no barriers to entry
Monopoly power
when firms are able to control the price they charge for their product
Monopoly
a market structure where ine firm supplies all output in the market without facing competition due to high barriers to entry
Monopsony
when there is only one buyer in a market
Multi-plant monopolist
the sole producer in an industry has multiple places of production which can be sold off to create competition
Nationalisation
the transfer of assets from the private to public sector
Natural monopoly
where economies of scale are so large relative to market demand that the dominant producer will always enjoy lower costs of production than any competitors
Net migration
immigration-emigration
Niche market
a small segment of a larger market
Non-collusive oligopoly
an oligopoly where firms compete amongst themselves and there is no collusion
Non-homogenous goods
goods that are similar but not identical, for example through use of branding
Normal profit
the amount of profit required to keep all factors of production employed in their current use in the long run (AKA Break-Even point)
Not-for-profit organisations
organisations that do not aim to make a profit; rather, they use any profit or surplus they generate to support their aims (eg. a charity)
Oligopoly
a market structure with a small number of interdependent firms
Optimal level of production
the range of output over which long run average costs are lowest
Optimal outcome
the outcome that maximises utility
Organic or internal growth
a firm increasing its size through investment in capital equipment/an increased labour force
Overt collusion
agreements between firms to reduce competition eg. through forming cartels
Payoff matrix
a matrix showing the outcomes of a game for players given different possible strategies
Perfect competition
market structure where there are many buyers and sellers, freedom of entry and exit, perfect knowledge and where all firms produce a homogenous product
Perfect information
when all buyers are fully informed of all prices and quantities for sale, whilst producers have equal information to production techniques
Population of working age
size of the population between school leaving age and the state retirement age
Predatory pricing
a pricing strategy where a firm lowers its prices when a new entrant comes into a market in order to force the competitor to leave the market, then raises prices again
Price agreement
a type of collusion where two or more firms agree to fix the prices of their products
Price discrimination
charging different prices for the same good/service in different markets
Price follower
a firm which sets its price based on the price of the price leader
Price leadership
where a 'price leader' sets its own price and other firms set their own price in relationship to that firm
Price taker
a firm with no control over market price and must accept the market price if it wants to sell its product
Price war
a situation where several firms in a market repeatedly lower prices to outcompete other firms
Prisoner's dilemma
a game where, given that neither player knows the strategy of the other, the dominant strategy leads to a different result than the optimal outcome
Private sector organisations
organisations owned by individuals or companies rather than the state
Privatisation
the transfer of assets from the public to private sector
Product differentiation
aspects of a good/service that distinguish a product from its competition, for example through packaging or marketing
Productive efficiency
production at the lowest average cost
Profit maximisation
when profit is at its highest // MR=MC
Profit satisficing
making sufficient profit to satisfy the demands of owners eg. shareholders
Public sector organisations
organisations owned and controlled by the state