ECON3 Key terms
- Created by: Emily Wright
- Created on: 01-06-14 13:59
Abnormal profit
Profit in excess of normal profit - also known as supernormal profit or monopoly profit. Abnormal profits may be maintained in a monopolistic market in the long run because of barriers to entry
Agency problem
Possible conflicts of interest that may result between the shareholders (principal) and the management (agent) of a firm
Anti-competitive behaviour
Strategies designed to limit the degree of competition inside a market
Asymmetric information
Where different parties have unequal access to information in a market
Average cost
Total cost per unit of output = Total cost / output = TC/Q
Average cost pricing
Setting prices close to average cost. It is a way to maximise sales, whilst maintaining normal profits. It is sometimes known as sales maximization
Average fixed cost
Total fixed cost per unit of output = TFC/Q
Average revenue
Total revenue per unit of output
Average variable cost
Total variable cost per unit of output = TVC/Q
Backward vertical integration
Acquiring a business operating earlier in the supply chain – e.g. a retailer buys a wholesaler, a brewer buys a hop farm
Barriers to entry
Ways to prevent the profitable entry of new competitors – they may relate to differences in costs between existing and new firms. Or the result of strategic behaviour by firms including expensive marketing and advertising spending
Batch production
When a factory makes a quantity of one form of a product or part, followed by a quantity of another different form
Behavioural economics
Branch of economic research that adds elements of psychology to traditional models in an attempt to better understand decision-making by investors, consumers and other economic participants
Bi-lateral monopoly
Where a monopsony buyer faces a monopsony seller in a market
Brand extension
Adding a new product to an existing branded group of products
Brand loyalty
The degree to which people regularly buy a particular brand and refuse to or are reluctant to change to other brands
Break-even output
The break-even price is when price = average total cost (P=AC)
Business ethics
Business ethics is concerned with the social responsibility of management towards the firm’s major stakeholders, the environment and society in general
Capacity
The amount that can be produced by a plant, company, or economy (industrial capacity) over a given period of time.
Capital intensive
When an industry or production process requires a relatively large amount of capital (fixed assets) or proportionately more capital than labour
Cartel
An association of businesses or countries that collude to influence production levels and thus the market price of a particular product
Collusion
Collusion takes place when rival companies cooperate for their mutual benefit. When two or more parties act together to influence production and/or price levels, thus preventing fair competition. Common in an oligopoly / duopoly
Competition Commission
Body that conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries such as water, electricity and gas
Competition Policy
Government policy which seeks to promote competition and efficiency in different markets and industries
Competitive advantage
When a…
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