Economics (Fach) / Definitions 3 (Lektion)
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Definitions 3
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- Monopoly: A market structure where there is only one firm in the industry.
- Imperfect Competition The collective name for monopolistic competition and oligopoly.
- Monopolistic Competition A market structure where, like perfect competition, there are many firms and freedom of entry into the industry, but where each firm produces a differentiated product and thus has some control over its price.
- Oligopoly A market structure where there are few enough firms to enable barriers to be erected against the entry of new firms.
- Natural Monopoly A situation where long-run average costs would be lower if an industry were under monopoly than if it were shared between two or more competitors.
- Competition for Corporate Control The competition for the control of companies through takeovers.
- Interdependence (under oligopoly) One of the two key features of oligopoly. Each firm will be affected by its rivals’ decisions. Likewise its decisions will affect its rivals. Firms recognize this interdependence. This recognition will affect their decisions.
- Collusive Oligopoly When oligopolists agree (formally or informally) to limit competition between themselves. They may set output quotas, fix prices, limit production promotion or development, or agree not to “poach” each other’s markets.
- Non-Collusive Oligopoly : When oligopolists have no agreement between themselves – formal, informal or tacit.
- Cartel A formal collusive agreement.
- Quota (set by a cartel): The output that a given member of a cartel is allowed to produce (production quota) or sell (sales quota).
- Tacit Collusion When oligopolists take care not to engage in price cutting, excessive advertising or other forms of competition. There may be unwritten “rules” of collusive behavior such as price leadership.
- Price Leadership When firms (the followers) choose the same price as that set by one of the firms in the industry (the leader). The leader will normally be the largest firm.
- Kinked Demand Theory The theory that oligopolists face a demand curve that is kinked at the current price: demand being significantly more elastic above the current price than below. The effect of this is to create a situation of price stability.
- Profit Satisficing Where decision makers in a firm aim for a target level of profit rather than the absolute maximum level.
- Sales Revenue Maximisation An alternative theory of the firm which assumes that managers aim to maximize the firm’s short-run total revenue.
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- Growth Maximisation An alternative theory which assumes that managers seek to maximize the growth in sales revenue (or the capital value of the firm) over time.
- Stakeholders (in a company): ): People who are affected by a company’s activities and/ or performance (customers, employees, owners, creditors, people living in the neighbourhood, etc.). They may or may not be in a position to take decisions, or influence decision taking, in the firm.
- Organisational Slack When managers allow spare capacity to exist, thereby enabling them to respond more easily to changed circumstances.
- Just-in-Time Methods Where a firm purchases supplies and produces both components and finished products as they are required. This minimizes stock holding and its associated costs.
- Average Cost or Mark-Up pricing Where firms set the price by adding a profit mark-up to average costs.
- Price Discrimination Where a firm sells the same product at different prices in different markets for reasons unrelated to costs.
- Downsizing Where a business reorganises and reduces its size, especially in respect to levels of employment, in order to cut costs.
- Wage Taker: The wage rate is determined by market forces.
- Mobility of Labour: The ease with which labour can either shift between jobs (occupational mobility) or move to other parts of the country in search of work (geographical mobility).
- Marginal Revenue Product of Labour The extra revenue a firm earns from employing one more unit of labour.
- Derived Demand The demand for a factor of production depends on the demand for the good that uses it.
- Monopsony: A market with a single buyer or employer.
- Oligopsony: A market with just a few buyers or employers.
- Productivity Deal Where, in return for a wage increase, a union agrees to changes in working practices that will increase output per worker.
- Efficiency Wage Rate The profit-maximising wage rate for the firm after taking into account the effects of wage rates on worker motivation, turnover and recruitment.
- Efficiency Wage Hypothesis A hypothesis that states that a worker’s productivity is linked to the wage he or she receives.
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