AQA Econ3 Key Terms
The definitions of key terms for Unit 3 for AQA A-Level Economics
- Created by: Beth Lennon
- Created on: 25-11-11 14:01
Time Differences
Long Run
the period of time when all factor inputs can be varied, but the state of technology remains constant.
Short Run
the period of time when at least one factor input into the production process can be varied
Very Long Run
the period of time when the state of technology can change
Cost
Average Cost
the average cost of production per unit, calculated by divinding the total cost by quanity produced. it is equal to average variable cost + average fixed cost
Economic Cost
the oppotuniry cost on an input to the production process
Marginal Cost
the cost of producing an extra unit of output
Total Cost
the cost of producing any gievn level of output. it is equal to total variable cost + total fixed cost
Revenue
Average Revenue
the average receipts per unit sold. it is equal to total revenue divided by quanitity sold
Marginal Revenue
the addition to total revenue of an extra unit sold
Total Revenue
the total money received from the sale of any given quantity of output
(Dis)economies of Scale
Diseconomies of scale
a rise in the long run average costs of production as output rises
External Economies of Scale
falling average costs of production, shown by a downward shift in the average cost curve, which result from a growth in the size of the industry within which a firm operates
Internal Economies of Scale
economies of scale which arise because of growth in the scale of production within a firm
Law of Diminishing 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
Production
Minimum Efficient Scale of production
the lowest level of output at which long run average cost is minimised
Optimal Level of production
the range of output over which long run average cost is lowest
Business Objectives
Profit Satisficing
making sufficient profit to satisfy the demands of shareholders
Cost-Plus pricing
the technique adopted by firms of pixig a price for their products by adding a fixed percentage profit margin to the long run average cost of production
Market Structure
Barriers to Entry
factors which make it difficult or impossible to enter an industry and compete with existing producers
Sunk Costs
costs of production which are not recoverable if a firm leaves the industry
Concentration Ratio
the market share of the largest firms in an industry 341
Abnormal Profit
any profit made over and above normal profit
Price Discrimination
charging a different price for the same good or service in different markets
Structures
Monopoly
sole producer in an industry, able to price discriminate and create abnormal profits
Oligopoly
small number of firms in the idustry and each firm is independen with other firms. barriers to entry are likely to exist
Perfect Competition
large number of small firms, homogenous product, price takers, no barriers to entry or exit, perfect knowledge
Monopolistic Competition
large number of small firms, non-homogenous products, no barriers to entry or exit
Contestable Market
freedom of entry to the industry, where costs of exit are low
Game Theory
Collusive Oligopoly
where several oligopolistic firms agree amongst themselves to engage anti-competitive practices such as fixing prices or output with a view to raise their profitability
Prisoners' Dilemma
a game where, given that neither player knows the strategy of the other player, the optimum strategy for each player leads to a worse situation than had they known the strategy of the other player and been able to co-operate and co-ordinate their strategies
Theories of Firms
Limit Pricing
when a firm, rather than short run profit maximising, sets a low enough price to dete new entrants from coming into the market (contestable market)
X-Inefficiency
inefficiency arising because a firm or other productive organisation fails to minimise its costs of production
Price Follower
a firm which sets its price by reference to the prices ser by the price leader in a market
Price Leadership
when one firm, the price leader, sets its own prices and other firms in the market set their prices in relationship to the price leader
Welfare Economics
Welfare Economics
the study of how an economy can best allocate resources to maximise the utility or economic welfare of its citizens
Optimal Allocation of Resources
occurs when resources are efficiently used in such a way as to maximise the welfare or utility of consumers
Relative Poverty
poverty which is defined relative to existing living standards for the average individual
Absolute Poverty
when individuals do not have resources to be able to consume sufficient necessities to survive
Labour
Progressive, Regressive and Proportional Tax
taxes where the proportion of income paid in tax rises, falls or remains the same respectively as income rises
Wage Determination
Mobility of Labour
occupational or geographical. the extent to which workers are able/willing to move between jobs
Flexibility
occupational flexibility- ability of workforce to perform different tasks and to apply transferable skills
contractual flexibility- part time works, monthly contracts, 0 hour contracts
Demand for Labour
Marginal Physical Product
the physical addition to output of an extra unit of variable factor of production
Marginal Revenue Product
the value of the physical addition to output of an extra unit of a variable factor of production. in a perfectly competitive product market where marginal physical product times the price of the good produced
Total Physical Product
the total output of a given quantity of factors of production
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