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Wages plus overtime pay, bonuses and commission
Economically Inactive
Working age people who are neither in employment, nor unemployed, and so are not part of the labour force
Labour force participation rate
The proportion of working age people who are economically active
Unit labour costs
The cost of labour per unit of output (including the social costs of employing labour as well as the wage costs
How much of a good is produced per unit of output
Social cost
Cost of recruitment, national insurance, redundancy, holiday and sick pay.
Time spent on preferred activities away from work and maintenance tasks
Market concentration ratio
The percentage share of the market of a given number of firms
Short run
Time period when a firm is unable to change factors of production except for one, usually labour
Long run
Time period where all factors of production can be changed
Fixed costs
Costs that are independent of output produced
Variable costs
Costs that are directly related to the level of output
Average cost
The unit cost of production
Marginal cost
The change in total cost when one more unit of output is produced
Economies of Scale
Reduction in the long run average costs resulting from increases in the scale of production
Diseconomies of scale
Increase in the long run average cost caused by increases in the scale of production
Minimum efficient scale
The lowest level of output at which full advantage can be taken of economies of scale
External economies of scale
Economies of scale that result from the growth of an industry and benefit firms within the industry
Average revenue
Total revenue divided by quantity sold
Marginal revenue
Addition to total revenue from one additional sale
Predatory pricing
Setting price low with the aim of forcing rivals out the market
Superior good
A good with positive income elasticity of demand greater than one
Barriers to entry
Obstacles to new firms entering a market
Barriers to exit
Obstacles to firms leaving a market
Sunk costs
Costs incurred by a firm that it cannot recover should it leave the market
Natural monopoly
A market where long run average costs are lowest when output is produced by one firm
Legal monopoly
A market where one firm has a share of 25% or more
Dominant monopoly
A market where a firm has 40% or more share
Profit maximisation
Achieving the highest possible profit where marginal cost equals marginal revenue
Supernormal profit
Profit earned where average revenue exceeds average costs
Normal profit
The level of profit needed to keep a firm in the market in the long run
A market structure dominated by a few large firms
A group of firms that produce separately but sell at one agreed price
Game theory
A theory of how decision makers are influenced by the actions and reactions of others
Monopolistic competition
A market structure in which there is a large number of small firms all selling a similar product
Incumbent firm
Existing firm
Dynamic Efficiency
Efficiency in terms of developing and introducing new production techniques and new products
Difference between actual costs and attainable costs
Contestable market
POTENTIAL COMPETITION a market in which there are no barriers to entry and exit and the costs facing incumbent and new firms are equal.
Hit and run competition
Firms quickly entering a market where there are supernormal profits and leaving it when the profits disappear.
Sales revenue maximisation
The objective of as high a total revenue as possible.
Profit satisficing
Where a firm makes a reasonable profit that satisifies it's stakeholders without maximising profit
Utility maximisation
The aim of trying to achieve as much satisfaction as possible
Derived demand
Demand for one item depending on demand for another item
Marginal Revenue product
The change in a firms revenue resulting from employing one more worker
Marginal product of labour
The change in output that results from employing one more worker.
Income effect
The effect on the supply of labour caused by the change in the ability to buy leisure.
Substitution effect
The effect on the supply of labour caused by a change in the opportunity cost of leisure.
Elasticity of demand for labour
How sensitive the quantity of labour demanded is to a change in the wage rate
Elasticity of supply for labour
The reactivity of the quantity of labour supplied to a change in the wage rate.
Flexible labour market
A labour market that adjusts quickly and smoothly to changes in the demand for and supply of labour.
Economic rent
A surplus paid to a factor of production above what is needed to keep it in its current occupation
Transfer earnings
The amount a factor of production could earn in its best alternative occupation, the minimum amount that has to be paid to ensure that a worker stays in his present job.
Labour market failure
A situation where the market forces of demand and supply do not result in an efficient allocation of labour resources
A single buyer of labour
One of a few dominant buyers of labour
Bilateral monopoly
A market with a single buyer and seller
The unjust or prejudicial treatment of different categories of people, especially on the grounds of age, race or sex
Segmented labour markets
A labour market is seen as segmented if it consists of various sub-groups with little or no cross-over capability. Segmentation can result in different groups, for example men and women receiving different wages.
Geographical immobility of labour
Barriers to the movement of workers between different areas
Occupational immobility of labour
Barriers to workers changing occupation
Gini co-efficient
Used to make international comparisons of income inequality. It is found using a Lorenz curve.
Lorenz curve
A diagram commonly used to illustrate income or wealth distribution
Absolute poverty
Inability to access or purchase food, shelter or clothing
Relative poverty
A situation of being poor in comparison to peers