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| Question | Answer |
| Anti competitive behaviour | Anti-competitive practices are business strategies designed deliberately to limit the degree of competition inside a market |
| Barriers to entry | Barriers to entry are designed to block potential entrants from entering a market profitably |
| Bilateral monopoly | A market in which a single seller faces a single buyer. The final determination of price and output is such a situation is uncertain - much depends on the relative bargaining strength between the two parties concerned |
| Break even | The break even output is the volume of goods or services that have to be sold in order for the business to make neither a loss nor a profit. The break even price is when price = average total cost. The break-even output occurs when AR=ATC (at this output, normal profit only is made) |
| Business ethics | Business ethics is concerned with the social responsibility of management towards the firm’s major stakeholders, the environment and society in general |
| Collective bargaining | Unions might seek to exercise their collective bargaining power with employers to achieve a mark-up on wages compared to those on offer to non-union members |
| Compensating wage differentials | Wage differentials in part act as a compensation for people who have to work unsocial hours or who are exposed to different degrees of risk at work, both in the short term and long run |
| Competition policy | Government policy which seeks to promote competition and efficiency in different markets and industries |
| Concentration ratio | Measure the proportion of an industry's output or employment accounted for by, say, the three, five or seven largest firms |
| Constrained revenue maximisation | Shareholders of a business may introduce a constraint on the price and output decisions of managers – this is known as constrained sales revenue maximisation |
| Consumer surplus | Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (indicated by the demand curve) and the total amount that they actually pay (the market price) |
| Contestable market | Where an entrant has access to all production techniques available to the incumbents, is not prohibited from wooing the incumbent’s customers, and entry decisions can be reversed without cost. |
| Cost benefit analysis | Cost benefit analysis (COBA) is a technique for assessing the monetary social costs and benefits of a capital investment project over a given time period |
| Cross subsidy | A firm operates a cross subsidy when it uses profits from one line of business to finance losses in another line of business. |
| Deadweight loss | A loss of social welfare deriving from a policy or action that has no corresponding gain. |
| Diminishing returns | The law of diminishing returns states that as we add more units of a variable input (i.e. labour or raw materials) to fixed amounts of land and capital, the change in total output will at first rise and then fall. Diminishing returns to labour occurs when marginal product starts to fall |
| Dominant market position | A firm holds a dominant position if it can operate within the market without taking account of the reaction of its competitors or of intermediate or final consumers. |
| Dynamic efficiency | Dynamic efficiency occurs over time. It focuses on changes in the consumer choice available in a market together with the quality/performance of goods and services that we buy |
| Economic efficiency | Economic efficiency is achieved when an output of goods and services is produced making the most efficient use of our scarce resources and when that output best meets the needs and wants and consumers and is priced at a price that fairly reflects the value of resources used up in production |
| Economies of scope | Economies of scope occur where it is cheaper to produce a range of products |
| External benefits | Positive externalities lead to social benefits exceeding private benefits |
| External costs | Negative spillover effects of production or consumption for which no compensation is paid. |
| External economies of scale | External economies of scale exist when the long-term expansion of an industry leads to the development of ancillary services which benefit all or the majority of suppliers in the industry. |
| First mover advantage | The idea that a business that creates a new product and which is first into the market can develop a competitive advantage in that market perhaps through learning by doing, because it has the advantage of being there first - making it more difficult and costly for new firms to come in |
| Free rider problem | If a public good is supplied, it will be available to them just as it would be to anyone else because pure public goods are non-excludable. This is the essence of the “free rider problem”: the incentive which consumers have to avoid contributing to financing public goods in proportion to their valuation of such good. |
| Game theory | A game occurs when there are two or more interacting decision-takers (players) and each decision or combination of decisions involves a particular outcome (pay-off.) |
| Gini coefficient | The gini coefficient is a measure of income or wealth inequality. It is the ratio between the area between a Lorenz curve and the 45 degree line and the area below the 45 degree line. |
| Horizontal integration | Horizontal integration occurs when two businesses in the same industry at the same stage of production become one |
| Imperfect competition | Covers market structures between perfect competition and pure monopoly, i.e. an industry with barriers to entry and differentiated products - examples include oligopoly and duopoly |
| Inequality | The extent to which income and wealth between the inhabitants of a country is dispersed |
| Innovation | Making changes to something established. Turning invention into commercial use. |
| Internal growth | Internal growth occurs when a business gets larger by increasing the scale of its own operations rather than relying on integration with other businesses |
| Law of unintended consequences | The law of unintended consequences is that actions of consumer and producers — and especially of government—always have effects that are unanticipated or "unintended." |
| Limit pricing | When a firm sets price just low enough to discourage possible new entrants |
| Marginal Revenue Product | Marginal Revenue Product (MRPL) measures the change in total revenue for a firm from selling the output produced by additional workers employed |
| Minimum efficient scale | The minimum efficient scale (MES) is the scale of production where the internal economies of scale have been fully exploited. It corresponds to the lowest point on the long run average cost curve |
| Nash equilibrium | Any situation where all of the participants in a game are pursuing their best possible strategy given the strategies of all of the other participants |
| Natural monopoly | For a natural monopoly the long-run average cost curve falls continuously over a large range of output. |
| Non price competition | Non-price competition assumes increased importance in oligopolistic markets. Non-price competition involves advertising and marketing strategies to increase demand and develop brand loyalty among consumers. |
| Normal profit | Normal profit is the minimum level of profit required to keep the factors of production in their current use in the long run |
| Oligopoly | An oligopoly is a market dominated by a few producers, each of which has control over the market. However, oligopoly is best defined by the conduct (or behaviour) of firms within a market rather than its market structure |
| Poverty trap | A situation in which a rise in income results in the recipient being worse off once tax has been paid and benefits withdrawn. The poverty trap acts as a disincentive for people on low incomes to earn some extra income from working extra hours or taking another job |
| Price leadership | Price leadership occurs when one firm has a clear dominant position in the market and the firms with lower market shares follow the pricing changes prompted by the dominant firm |
| Product differentiation | Product differentiation occurs when a business seeks to distinguish what are essentially the same products from one another by real or illusory means. This means that the assumption of homogeneous products made under conditions of perfect competition no longer applies |
| Product line pricing | It is frequently observed that a producer may manufacture many related products. They may choose to charge one low price for the core product (accepting a lower mark-up or profit on cost) as a means of attracting customers to the components / accessories that have a much higher mark-up or profit margin. |
| Profit related pay | Where part of the earnings of people working for a business are linked directly to the profits made by that business. Profit related pay is often used as an incentive to raise productivity |
| Regulatory capture | This is when the industries under the control of a regulatory body (i.e. a government agency) appear to operate in favour of the vested interest of producers rather than consumers |
| Rent seeking behaviour | Behaviour by producers in a market that improves the welfare of one but at the expense of another |
| Returns to scale | In the long run, all factors of production are variable. How output responds to a change in factor inputs is called returns to scale |
| Revenue maximisation | Revenue maximization is when MR = zero (i.e. when price elasticity of demand = 1) |
| Satisficing behaviour | Maximising behaviour may be replaced by satisficing which in essence involves the owners setting minimum acceptable levels of achievement in terms of revenue and profit. |
| Shut down price | In the short run the firm will continue to produce as long as total revenue covers total variable costs or put another way, so long as price per unit > or equal to average variable cost (AR = AVC). |
| Static efficiency | Static efficiency occurs at a point in time and focuses on how much output can be produced now from a given stock of resources, and whether producers are charging a price to consumers that reflects fairly the cost of the factors used to produce a product. |
| Strategic entry deterrence | Strategic entry deterrence involves any move by existing firms to reinforce their position against other firms or potential rivals |
| Sunk costs | Sunk costs are costs that can't be recovered if a business decides to leave an industry |
| Tacit collusion | Tacit collusion occurs where firms undertake actions that are likely to minimise a competitive response, e.g. avoiding price cutting or not attacking each other’s market |
| Two part pricing tariffs | A fixed fee is charged (often with the justification of it contributing to the fixed costs of supply) and then a supplementary “variable” charge based on the number of units consumed |
| Vertical integration | Vertical Integration involves acquiring a business in the same industry but at different stages of the supply chain |
| Absolute poverty | Absolute poverty measures the number of people living below a certain income threshold or the number of households unable to afford certain basic goods and services. |
| Collusion | Collusion is any explicit or implicit agreement between suppliers in a market to avoid competition. Producers may decide to control market supply by entering into a collusive agreement and opt to fix prices rather than engage in competition. |
| Competition and markets authority | The Competition and markets authority carries out inquiries into matters referred to it by the other UK competition authorities concerning monopolies, mergers and the economic regulation of utility companies. |
| External economies of scale | External economies arise from the growing size of an industry. As the industry grows in size and there are more firms in the industry, these companies may enjoy lower average total costs for several reasons: Firms will be able to draw on a pool of skilled labour, trained by firms and government, thus reducing their own training and living costs. |
| Organic growth | Firms can generate higher sales and increased market share by expanding their operations and exploiting possible economies of scale. This is internal rather than external growth (i.e. organic growth) and therefore tends to be a slower means of expansion contrasted to mergers and acquisitions |
| Resource Allocation | Resource allocation refers to a given use of land, labour, capital and entrepreneurs those results in particular amounts of goods and services being produced. |
| Relative poverty | Relative poverty measures the extent to which a household's financial resources falls below an average income threshold for the economy. |
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