Unit 3 Vocabulary - Edexcel International A Level Economics

Cooperative

A firm owned, controlled and operated by a group o users, such as workers, for their own benefit.

Joint Venture

Where a seperate business entity is created by two or more parties where ownership, returns and risks are shared.

Limited Company

A type of business organisation where the owners are its shareholders and its owner’s identity and the company’s identity are legally seperate.

Not For Profit Organisation

Organisations that do not have making a profit as a goal but may use any profit or surplus they generate to support their aims.

Partnership

A type of business organisation where two or more people own the business.

Private Sector Organisations

Organisations that are owned by individuals or companies and not the state.

State Owned Enterprises

Large organisations that are created by a country's government to carry out commercial activities.

Sole Trader

A business owned and operated by one person.

Backward Vertical Integration

A joining together of two or more firms into one firm, where the purchaser merges with one or more of its suppliers.

Conglomerate Integration

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

Demerger

When a firm splits into two or more independent businesses.

Forward Vertical Integration

A joining together of two or more firms into one firm, where the supplier merges with one or more of its buyers.

Horizontal Vertical Integration

A joining together of two or more firms in the same industry at the same stage of production.

Merger/Takeover

The joining together of two or more firms under common ownership.

Niche Market

A market for a product or service that does not have many buyers but that may make good profits for companies that sell it.

Organic Growth

A firm increasing its size through investtment in capital equipment or an increased labour force.

Synergy

When two or more ctivities or firms put together cn lead to greater outcomes that the sum of the invididual parts.

Vertical Integration

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

Cost-plus Pricing

A technique adopted by firms of fixing a price for their products by adding a fixed percentage proit margin to the long-run average cost of production.

Divorce of Ownership and Control

Occurs when the managers and directors of a business are a different group of people ffrom the owners of the business.

Profit Maximisation

Occurs when the diffference between total revenue and total cost is the greatest (MR=MC)

Profit Satisficing

Making sufficient profit to satisfy the demands of the owners (e.g. shareholders)

Revenue Maximisation

Occurs when total revenue is the highest and when marginal revenue equals zero (MR=0).

Sales-volume Maximisation

Occurs when the volume of sales is the greatest (AR=AC).

Average Revenue

The average amount recieved per unit sold.

Total Revenue ÷ Total Quantity Sold

Marginal Revenue

The extra revenue recieved from the sale of one extra unit of output.

Total Revenue

The total money received from the sale of any amount of output.

Average Cost

• The cost of production per unit.

• Total Cost of Production ÷ Quantity Sold

• Average Variable Cost + Average Fixed Cost

Average Product

The quantity of output per unit of factor input.

Total Product ÷ Total Level of Output

Average Variable Cost

Total Variable Cost ÷ Number of Units Produced

Factors of Production

The inputs to the production process.

Imputed Cost

An economic cost which a firm does not pay for with money to another firm but is the opportunity cost of factors of production which the firm owns.

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.

Marginal Product

The addition to output produced by an extra unit of input.

Change in the Total Output ÷ Change in the Level of Inputs

Returns to Scale

The change in percentage output resulting from a percentage change in all factors of production.

Increasing Returns to Scale

If the percentage increase in output is greater than the percentage increase in the factors used.

Constant Returns to Scale

If the percentage increase in output is equal to the percentage increase in the factors used.

Decreasing Returns to Scale

If the percentage increase in output is lower than the percentage increase in the factors used.

Total Cost

The cost of producing any given level of output.

Total Variable Cost + Total Fixed Cost

Total Fixed Cost

The value of the cost of production which does no vary however many units are produced.

Diseconomies of Scale

A rise in the long run average costs of production as output rises.

Economies of Scale

A fall in the long-run average costs of production as output rises.

External Economies of Scale

Falling average costs of production which is the result of the growth in the size of the industry within which a firm operates.

Minimum Efficient Scale

Economies of Scale which arise because of the growth in the scale of production within a firm.

Normal Profit

The profit the firm could make by using its resources in their next best use.

Long Run Shut Down Point

When normal profit is not being earned in the long run.

Short Run Shut Down Point

When variable costs are not being covered

AR>SRAVC

Allocative Efficiency

Whether resources are allocated to those goods and services demanded by consumer and satisfy their wants and needs.

Productive Efficiency

When production is achieved at the lowest average cost.

Dynamic Efficiency

When resources are allocated efficiently over time through investment.

X-Inefficiency

When a firm is not producing at the lowest possible cost for a given output level due to lack of competition.

Barriers to Entry

Factors which make it difficult or impossible for ffirms to enter and industry and compete with existing producers.

Barriers to Exit

Factors which make it difficult for firms to cease production and leave an industry.

Concentration Ratio

The market share of the largest firms in an industry.

Homogenous Goods

Goods made by many differernt firms which are identitical.

Perfect Knowledge

Where all buyers in a market are fully informed of prices and quantity for sale, which producers have equal access to information about production techniques.

Economic Welfare

The level of well being, prosperity, or living stands of an. individual or group of individuals.

Perfect Competition

• A market structure where there many many buyers and sellers,

• freedom of entry and exit into the market,

• there is perfect knowledge,

• firms produce a homogeneous product.

Monopolistic Competition

• A market structure where a large number of small firms

• produces non-homogenous products

  • and where there are no barriers to entry or exit.

Cartel

A group of firms that have made a formal agreement to limit competition in the market.

Collusion

Collective agreements either formaal or tacit, between firms that restrict competition,

Oligopoly

A market structure where there is a small number of interdependent firms in the industry.

Monopolist

A firm which controls all the output in a market.

Monopoly

Market structure where one firm supplies all output in a market without facing competition because of high barriers to entry to the market.

Monopoly Power

Exists when firms are able to control the price they charge for their product in a market.

Monopsony

Where there is only one buyer in the market.

Natural Monopoly

A monopoly that arises due to continuing falling economies of scale.

Price Discrimination

Charging a different price for the same good or service in different markets.

Contestable Market

A market where there is freedom of entry to the industry and where costs of exit are low.

Sunk Costs

Costs which cannot be recovered when a firm leaves an industry.

Marginal Revenue Product (MRP)

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

Total Physical Product

The total output of a given quantity of factors of production.

Participation Rate

Also known as the Activity Rate, it is the percentage or proportion of any given population ni the labour force.

Economically Active

The number of workers in the workforce who are in a job or are unemployed.

Underemployment

Where people are not able to work as many hours as they would like, or are in jobs that are below their skill level.

Bilateral Monopoly

When a single buyer faces a single seller in a market.

Geographical Immobility

When workers find it difficult to move from one area to another.

Geographical Immobility

When workerrs find it difficult to transfer from one area to another.

Occupational Immobility

When workers find it difficult to transfer from one occupation to another.

Structural Unemployment

When the pattern of demand and production changes, leaving workers unemployed in shrunk markets.

Competitive Tendering

Introducing competition among private sector firms which put in bids for work that has been contracted out by the public sectors.

Nationalisation

The transfer of firms or assets from private sector ownership to state ownership

Privatisation

The transfer of organisations or assets ffrom state ownership to private sector ownership. R

Regulatory Capture

An example of government failure, it occurs when firms in an industry are able to influence to their advantage a regulatory body that should be regulating their behaviour.

Maximum Wage

A legal maximum wage rate per hour or total pay.

Minimum Wage

A Legal minimum wage rate per hour which employers must pay their workers.