1. Super-normal fun with definitions for IAL

2.  Anything with an * means you should know where and how it relates to diagrams.  Anything with a & means you don’t really need the definition as such – just examples.

3. Costs

4.  Average costs*

5.  Fixed costs*

6.  Variable costs*

7.  Marginal Costs*

8.  Implicit costs

9.  Explicit costs

10.  Sunk costs

11.  The law of diminishing marginal returns* also known as diminishing marginal productivity.

12.  Economics of Scale*

13.  Internal economies of scale

14.  External economies of scale

15.  Diseconomies of scale*

16.  Synergies &

17. Vertical integration

18.  Backward vertical integration

19.  Forward vertical integration

20.  Horizontal integration

21.  Organic growth

22.  Demerger

23.  Short term

24.  Long term

25.  Shut down/leave market point in the short term*

26.  Shut down/leave market in the long term point*.

27. Revenue

28.  Average revenue*

29.  Marginal Revenue*

30.  Total Revenue*

31.  Normal profit*

32.  Supernormal profit*

33.  Perfect Competition*

34.  Imperfect competition/monopolistic competition*

35.  Oligopoly*

36.  Concentration ratio*

37.  Monopoly*

38.  Legal Monopoly

39.  Natural Monopoly

40.  Monopsony

41.  Profit maximisation*

42.  Revenue Maximisation*

43.  Sales Maximisation*

44.  Profit satisficing

45.  Product differentiation

46.  Interdependence

47.  Price maker

48.  Price taker

49.  Contestable markets

50.  Credible threat

51.  Barriers to entry

52.  Barriers to exit&

53.  Productive efficiency*

54.  Allocative Efficiency*

55.  Kinked demand curve*

56.  Collusion

57.  Formal (overt) collusion

58.  Tacit collusion

59. Pricing Strategies

60.  Limit Pricing

61.  Premium pricing

62.  Predatory Pricing

63.  Loss leader

64.  Penetration pricing

65.  Psychological pricing

66.  Price discrimination*

67.  First degree price discrimination

68.  Second degree price discrimination

69.  Third degree price discrimination*

70.  Office of Fair Trading and the Competition Commission – now the CMA – the Competition and Markets Austhority

71.  Competitive tendering

72.  International Competitiveness:

73.  Unit Labour Cost

74.  Transnational Corporation

75.  Transfer pricing

76. Costs

77.  Average costs*  Total costs divided by output.

78.  Fixed costs*  Costs that do not vary with output.

79.  Variable costs*  Costs which vary with output.

80.  Marginal Cost*  The cost of producing one extra unit of output.

81.  Implicit costs  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 itself owns.

82.  Explicit costs  Explicit costs represent clear, obvious cash outflows from a business that reduce its bottom-line profitability.

83.  Sunk costs  A cost that has already been incurred and no part of it can be recovered.

84.  The law of diminishing marginal returns  This states when you have a fixed factor, and you add a variable factor to that in the production process – the return will eventually begin to diminish.

85.  Economics of Scale  Cost benefits due to expansion.

86.  Diseconomies of scale  Rising average costs as a firm gets too big.

87.  Internal economies of scale  Costs benefits that an individual firm can enjoy as it expands.

88.  External economies of scale  The costs benefits that all firms in an industry can enjoy when the industry expands.

89.  Synergies&

90. Vertical integration

91.  Backward vertical integration  Merging with a firm which operates at an earlier stage of the production process – that is further away from the consumer

92.  Forward vertical integration  Merging with a firm which operates in a later stage of the production process – that is closer to the consumer.

93.  Horizontal integration  Horizontal merger is a type of merger between two firms in the same industry at the same stage of production.

94.  Organic growth  Organic growth is the process of business expansion by increased output, customer base expansion or by launching new products.

95.  Demerger  A single business is broken into separate components.

96.  Short term  When at least one factor of production is fixed.

97.  Long term  When all factors of production are variable.

98.  Shut down/leave market point in the short term*  A firm will implement a production shutdown if the revenue from the sale of goods produced cannot cover the variable costs of production.

99.  Shut down/leave market in the long term point*.  A firm will implement a production shutdown in the long run if the revenue from the sale of goods produced cannot cover the total costs of production.

100. Revenue

101.  Average revenue*  Total revenue divided by number of units sold.

102.  Marginal Revenue*  Revenue earned from selling one extra unit of output.

103.  Total Revenue*

104.  Normal profit*  Normal profit is the minimum level of profit needed so that a firm will remain in the market.

105.  Supernormal profit*  Abnormal (or supernormal or economic) profit – the profit over and above normal profit.

106.  Perfect Competition*  No need for definition – just know the conditions for perfect competition.

107.  Imperfect competition/monopolistic competition*  No need for definition – just know the conditions for perfect competition.

108.  Oligopoly*  A market structure dominated by a few large firms.

109.  Concentration ratio*  Know what it is and how to calculate it.

110.  Monopoly*  A market structure dominated by one large firm.

111.  Legal Monopoly  A situation whereby a firm controls 25% of more of the market share.

112.  Natural Monopoly  Natural monopolies occur when a single firm can serve the entire market at a lower cost than a combination of two or more firms.

113.  Monopsony  A monopsony exists where there is only one dominant buyer in a market.

114.  Profit maximisation*  Operate at point MC=MR

115.  Revenue Maximisation*  Operate at a point of MR = 0

116.  Sales Maximisation*  Selling as many units as possible without making a loss. Operate at AC=AR

117.  Profit satisficing  Making just enough profit to satisfy the owners of the business.

118.  Product differentiation  A marketing process that showcases the differences between products.

119.  Interdependence  One firm’s behaviour directly affects the behaviour and decisions of rival firms.

120.  Price maker  Have some control of price.

121.  Price taker  Have no control of price and must accept what the market offers.

122.  Contestable markets  Markets where there is freedom of entry and exit.

123.  Barriers to entry&  Obstacles preventing new firms from entering a market.

124.  Barriers to exit&  Costs associated with leaving a business.

125.  Productive efficiency*  When production is achieved at its lowest cost.  Produce at the lowest point on the AC curve.

126.  Allocative Efficiency*  Occurs when resources are distributed in such a way that no consumers could be better off without making others worse off.  Produce where P=MC

127.  Kinked demand curve*  Either an increase or a decrease in price will lead to a fall in total revenue

128.  Collusion  Collusion: collective agreements between producers to restrict competition.

129.  Formal collusion  Collective written or verbal agreements between producers to restrict competition. 

130.  Tacit collusion.  when firms collude without any formal agreement being reached or even without explicit communication between the firms.

131. Pricing Strategies

132.  Limit Pricing  Selling at below the profit maximisation price in order to dissuade new entrants from coming into the market.

133.  Premium pricing  Setting a high price in order to attract a small number of high income customers.

134.  Predatory Pricing  Selling at a loss in order to drive competitors out of the market and then raising price afterwards.

135.  Loss leader  Selling certain items at a loss in the hope that demand for their complements will compensate.

136.  Penetration pricing  Penetration pricing is a marketing technique in which a company offers a new product at a price significantly lower than its competitors.

137.  Price discrimination*&  Price discrimination occurs when different prices are charged to different consumers for the same product by the same provider.

138.  First degree price discrimination  The seller is able to get the maximum possible price from each customer. The seller takes all the consumer surplus.

139.  Second degree price discrimination  This is price discrimination based on quantity.  Bulk buying, season tickets holders, frequent flyers etc.

140.  Third degree price discrimination  This is when the seller separates consumers based on time, income, gender or age.

141.  Office of Fair Trading and the Competition Commission (NOW THE CMA)  Government body designed to protect the interest of consumers and emilinate anti- competitive practices.

142.  International Competitiveness:  is the ability of an economy to compete fairly and successfully in markets for internationally traded goods and services.

143.  Unit Labour Cost  These are the labour costs of supplying goods and services per unit of output – in simple terms, how expensive it is to make something of value.

144.  Competitive tendering  Introducing competition among private sector firms which put in bids for work which the public sector feel should be undertaken by private hands.

145.  Transnational Corporation  A transnational corporation (TNC or MNC) is a firm with significant operations in several different countries.

146.  Transfer pricing  Transfer pricing is the setting of the price for goods and services sold between parent and subsidiary companies.