Edexcel A-level Economics Theme 3

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Backwards vertical integration

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125 Terms

1

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

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2

Conglomerate integration

a joining together into one firm of two or more firms producing unrelated products

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3

Demerger

when a firm splits into two or more independent businesses

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4

Divorce of ownership from control

when managers and directors of a business are different from the owners of a business (the shareholders)

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5

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

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6

Horizontal integration

a joining together of two firms in the same industry at the same stage of production

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7

Niche market

a small segment of a larger market

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8

Merger/integration

the joining together of two or more firms under common ownership

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9

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)

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10

Organic or internal growth

a firm increasing its size through investment in capital equipment/an increased labour force

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11

Private sector organisations

organisations owned by individuals or companies rather than the state

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12

Public sector organisations

organisations owned and controlled by the state

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13

Synergy

when two or more activities/firms put together can lead to greater outcomes than the sum of the individual parts

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14

Vertical integration

a joining together into one firm of two or more firms in the same industry at different stages of production

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15

Average revenue

the average receipts per unit sold // TR÷Q

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16

Marginal revenue

the addition to total revenue of an extra unit sold // ΔTR÷ΔQ

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17

Total revenue

the total amount of money received from the sale of any given quantity of output // AR*Q

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18

Average product

the quantity of output per unit of factor input // total product÷level of output

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19

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.

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20

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

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21

Marginal product

the addition to output produced by an extra unit of input // Δtotal output÷Δlevel of inputs

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22

Returns to scale

the change in percentage output resulting from a percentage change in all the factors of production

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23

Short run

the period of time in which at least one factor of production is fixed, as is the number of firms in the market

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24

Total product

the quantity of output measured in physical units produced by a given number of inputs over a period of time

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25

Very long run

the period of time in which all factors are variable, as is the number of firms in the market, and the state of technology is variable

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26

Average cost

the average cost of production per unit // AVC+AFC

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27

Average fixed cost

TFC÷Q

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28

Average variable cost

TVC÷Q

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29

Diseconomies of scale

a rise in the long run average costs of a firm as production increases

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30

Economic cost

the opportunity cost of an input into the production process

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31

Economies of scale

a fall in long run average costs of production as output rises

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32

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

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33

Fixed costs

costs which do not vary as the level of production changes

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34

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

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35

Internal economies of scale

economies of scale which arise due to growth in the scale of production within a firm

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36

Marginal cost

the cost of producing an extra unit of output

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37

Minimum efficient scale (MES)

the lowest level of output at which long run average costs are minimised

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38

Optimal level of production

the range of output over which long run average costs are lowest

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39

Semi-variable costs

costs that contain within it a fixed and variable cost element

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40

Total cost

the cost of producing at any given level of output // TFC+TVC

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41

Total fixed cost

the value of the cost of production that does not vary with output

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42

Total variable cost

the overall cost of factors of production that vary directly with output

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43

Variable costs

costs which vary directly in proportion with output

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44

Supernormal profit

profit above normal profit

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45

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)

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46

Subnormal profit

profit below normal profit

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47

Barriers to entry

factors which make it difficult/impossible for firms to enter an industry and compete with existing producers

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48

Barriers to exit

factors which make it difficult/impossible for firms to leave a market and cease production

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49

Brand

a name, design, symbol or other feature that distinguishes a product from another and makes it non-homogenous

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50

Concentration ratio

the market share of the largest firms in the industry

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51

Homogenous goods

identical goods made by different firms

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52

Independence

where the actions of one firm has no significant impact on any other firms in the market

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53

Interdependence

where the actions of one firm have an impact on other firms in the market

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54

Limit pricing

when a firm sets a low enough pricing to deter new entrants into a market

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55

Market concentration

the degree to which the output of a market is dominated by the largest firms

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56

Market share

the proportion of sales in a market taken by a firm/group of firms

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57

Market structure

the characteristics of a market that determine the behaviour of firms in the market

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58

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

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59

Non-homogenous goods

goods that are similar but not identical, for example through use of branding

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60

Perfect information

when all buyers are fully informed of all prices and quantities for sale, whilst producers have equal information to production techniques

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61

Product differentiation

aspects of a good/service that distinguish a product from its competition, for example through packaging or marketing

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62

Sunk costs

costs of production that are not recoverable if a firm leaves an industry

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63

Uncertainty

a when one firm does not know how other firms will react if it changes strategy

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64

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

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65

Price taker

a firm with no control over market price and must accept the market price if it wants to sell its product

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66

Monopolistic competition

a market structure where a large number of small firms produce non-homogenous products and where there are no barriers to entry

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67

Monopolist

a firm that controls all the output in a market

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68

Monopoly

a market structure where ine firm supplies all output in the market without facing competition due to high barriers to entry

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69

Price discrimination

charging different prices for the same good/service in different markets

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70

Monopoly power

when firms are able to control the price they charge for their product

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71

Monopsony

when there is only one buyer in a market

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72

Contestable market

a market with freedom of entry and where the costs of exit are low

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73

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

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74

Consumer sovereignty

exists when the economic system allocates resources totally according to consumer preference

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75

Cost-plus pricing

where firms fix a price for their products by adding a fixed percentage profit margin on top of the long run average cost of production

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76

Profit maximisation

when profit is at its highest // MR=MC

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77

Profit satisficing

making sufficient profit to satisfy the demands of owners eg. shareholders

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78

Revenue maximisation

when revenue is at its highest // MR=0

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79

Sales maximisation

when the volume of sales is at its highest // AR=AC

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80

Allocative efficiency

where the goods produced satisfy consumer preferences and maximise their welfare

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81

Dynamic efficiency

where investment reduces the long run average cost curve

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82

Productive efficiency

production at the lowest average cost

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83

X-inefficiency

inefficiency arising from a lack of competition

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84

Creative destruction

where firms produce/create new products that replace existing products on the market

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85

Multi-plant monopolist

the sole producer in an industry has multiple places of production which can be sold off to create competition

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86

Competitive tendering

introducing competition among private sector firms which put in bids for work contracted out by public sector firms

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87

Contracting out

getting private sector firms to produce goods and services then provided by the state

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88

Deregulation

the process of removing government controls from markets

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89

Regulatory capture

when firms can influence to their advantage the market regulatory body

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90

Nationalisation

the transfer of assets from the private to public sector

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91

Privatisation

the transfer of assets from the public to private sector

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92

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

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93

Marginal physical product

the physical addition to output of an extra unit of a variable factor of production

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94

Marginal revenue product

the value of the physical addition to outputof an extra unit of a variable factor of production

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95

Total physical product

the total output of a given quantity of factors of production

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96

Unit cost of labour

the cost of employing labour per unit of output

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97

Activity rate

the proportion of any given population actually in the workforce

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98

Economically active

the number of workers in the workforce either in a job or unemployed

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99

Net migration

immigration-emigration

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100

Population of working age

size of the population between school leaving age and the state retirement age

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