Econ theme 3 definitions

Allocative Efficiency

Resources are used in the best way possible, making sure society gets the most benefit! Happiest customers and no waste.

Asymmetric Information

When one side (buyer or seller) knows more than the other. Can lead to unfair deals.

Average Cost (AC)

The cost of making one unit of a product.

Average Revenue (AR)

The price per unit that a business sells its products for.

Bilateral Monopoly

A situation where there's only one buyer and one seller in the market.

Cartels

A secret (or sometimes open) agreement between businesses to set prices and avoid competition.

Collusion

When businesses work together, instead of competing, to keep prices high or limit production.

Competition Policy

Government rules to make sure companies compete fairly.

Competitive Tendering

When businesses bid to provide a government service, and the best offer wins.

Conglomerate Integration

When two completely unrelated businesses merge.

Constant Returns to Scale

When increasing inputs (labour, materials) leads to an equal increase in output.

Contestable Market

A market where new businesses can enter easily, keeping existing firms on their toes.

Decreasing Returns to Scale

When increasing inputs doesn't give as much extra output as expected.

Demergers

Breaking up a big company into smaller ones.

Deregulation

Removing government rules to let businesses compete freely.

Derived Demand

When the demand for one product depends on another.

Diseconomies of Scale

When a company gets too big and starts becoming inefficient.

Economies of Scale

When businesses grow and produce more at a lower cost.

External Economies of Scale

When an industry's growth benefits all businesses within it.

Fixed Cost

Business costs that stay the same no matter how much is produced.

For-Profit Business

A business whose main goal is making money.

Game Theory

A way to predict what competitors will do based on their possible choices.

Geographical Mobility of Labour

How easily workers can move to different places for work.

Horizontal Integration

When two companies in the same industry at the same level merge.

Increasing Returns to Scale

When a business grows, and its output increases faster than its inputs.

Interdependent

When one business's actions directly affect another.

Internal Economies of Scale

When a business's growth reduces its costs, independently of other businesses.

Limit Pricing

Setting prices low to prevent new competitors from entering the market.

Loss

When a business spends more than it earns.

Marginal Cost

The extra cost of making one more unit of a product.

Marginal Revenue

The extra money earned by selling one more unit.

Minimum Efficient Scale

The smallest production level needed to benefit from economies of scale.

Monopoly

When one company dominates the entire market.

Monopsony

When there's only one buyer in a market.

Nationalisation

When the government takes control of a private company or industry.

Natural Monopoly

When it makes sense for only one company to exist.

Oligopoly

When a few big companies dominate the market.

Organic Growth

When a business grows naturally by increasing sales and production.

Perfect Competition

A market with many sellers, identical products, and no barriers to entry.

Predatory Pricing

Setting prices super low to drive competitors out of business.

Price Wars

When companies keep lowering prices to compete.

Principal-Agent Problem

When managers (agents) make decisions that don't always benefit the owners.

Privatisation

Selling government-owned businesses to private owners.

Profit Maximisation

When a business tries to make as much money as possible.

Regulatory Capture

When regulators start favouring businesses instead of protecting consumers.

Revenue Maximisation

When a business tries to earn as much money as possible.

Sales Maximisation

When a business focuses on selling as many products as possible without making losses.

Sunk Costs

Money that has already been spent and can't be recovered.

Supernormal Profit

When a business earns more than the minimum needed to stay in the market.

Tacit Collusion

When businesses indirectly agree on pricing without formally discussing it.

Third Degree Price Discrimination

Charging different prices to different groups of customers for the same product.

Vertical Integration

When a company takes over another at a different stage in production.