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Key Concepts
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- 1Short-run shut-down pointThis is where the AR curve is tangential to the AVC curve. The firm can only just cover its variable costs. Any fall in revenue below this level will cause a profit-maximising firm to shut down.
- 2Long-run shut-down pointThis is where the AR curve is tangential to the LRAC curve. The firm can just make normal profits. Any fall in revenue below this level will cause a profit-maximising firm to shut down once all costs have become variable.
- 3Normal ProfitThe opportunity cost of being in business. It consists of the interest that could be earned on a riskless asset, plus a return for risk-taking in this particular industry.
- 4Natural Monopoly (Economies of Scale)A situation where long-run average costs would be lower if an industry were under monopoly than if it were shared between two or more competitors.
- 5Economies of scopeIf a firm produces a range of products, then costs such as research, marketing and storage can be spread out over the product range.
- 6Competition for corporate controlThe competition for the control of companies through takeovers. This could happen if a monopoly, which has potentially low costs, is being run inefficiently.
- 7Market powerThe degree to which a firm has discretion over what price to charge for its products
- 8Independence (of firms in a market)When the decisions of one firm in a market will not have any significant effect on the demand curve of its rivals.
- 9Product differentiationWhen one firm's goods are sufficiently different from its rivals' to allow it to raise the price of the product without consumers switching to the rivals' products. The firm will face a downward sloping demand curve.
- 10Perfect competition assumptions-many firms
-identical product
-no barriers to entry
-perfect knowledge
-price takers - 11Monopolistic competition assumptions-many firms
-free entry
-differentiation
-independence - 12Oligopoly key features-Interdependence
-Barriers to entry - 13Excess capacity (under monopolistic competition)In the long run, firms under monopolistic competition will produce at an output below that which minimises average cost per unit
- 14Interdependence (under oligopoly)Each firm will be affected by its rivals' decisions. Likewise its decisions will affect its rivals. Firms recognise the importance of this interdependence and it affects their decisions.
- 15Tacit collusionA situation where firms have an unspoken agreement to engage in a joint strategy. For example oligopolists take care not to engage in price cutting, excessive advertising or other forms of competition. There may be unwritten rules of collusive behaviour such as price leadership.
- 16Nash equilibriumThe position resulting from everyone making their optimal decision based on their assumptions about their rivals' decisions.
- 17Prisoner's dilemmaWhere two or more firms, by attempting to independently choose the best strategy, based on what others are likely to do, end up in a worse position than if they'd cooperated from the start.
- 18Limit pricingWhere a business keeps prices low, restricting its profits, so as to deter new rivals entering the market.
- 19First degree price discriminationWhere a firm charges each consumer for each unit the maximum price which that consumer is willing to pay for that unit
- 20Second degree price discriminationwhere the firm charges a consumer so much for the first so many units purchased, a different price for the next so many units and so on.
- 21Third degree price discriminationWhere a firm divides consumers into different groups and charges a different price to consumers in different groups, but the same price to all consumers within a group.
- 22Full range pricingA pricing strategy in which a business, seeking to improve its profit performance, assesses the pricing of its goods as a whole rather than individually.
- 23Excess burden of taxesThe amount by which the loss in consumer plus producer surplus exceeds the government surplus.
- 24GlobalisationHow our lives are becoming intertwined with those of distant people and places around the world economically, politically and culturally
- 25Balance of paymentsAn account that records all the flows of money between residents of that country and the rest of the world
- 26Actual growthThe percentage annual increase in national output actually produced
- 27Potential growthThe percentage annual increase in the capacity of the economy to produce (potential output)
- 28Potential outputThe output that could be produced in the economy if all firms were operating at their normal level of capacity utilisation.
- 29Output gapDifference between actual and potential output.
- 30Aggregate demandTotal spending on goods and services made within the country. It consists of four elements: Consumer spending (C), Investment (I), government spending (G) and exports (X), less any expenditure on foreign goods and services (M):
AD = C+I+G+X-M
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- Master's Business Economics Fichas sobre Key Concepts, creado por eliflo92 el 29/08/2015.
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