Economic Terms

The risk that the failure of one or more troubled financial intermediaries could trigger a contagious collapse of otherwise healthy firms.

Is where firms follow a mutually beneficial, co-operative strategy without explicitly agreeing to do so. This type of collusion is more common amongst firms because collusion is strictly prohibited, this is seen as a more subtle way of colluding with firms and therefore a higher probability of avoiding detection.

Below is an example of the most common form of this type of collusion - price leaderhsip. This is where one firm takes up the role of the price maker, often called the 'leader'. Once this firm has set the price all the 'follower' firms then match this price. Firms can enjoy supernormal profit using this method because the 'leader' sets an extremely high price, that normally in the market would get undercut by rivals. But as all firms agree to match this price, consumers are forced to buy this product at a high price from any of these firms if they desire the good being sold in this market. As this is a form of collusion it is legally prohibited and often individual firms have an incentive to cheat to capture the entire market and steal supernormal profits. The logical chain of reasoning of this pricing strategy is shown below.

This is the purchase of one company by another company. This is a way that companies can expand their business operations and branch into markets that previously they have found difficult to break into. For instance in November 2015 Activision bought King Digital (creator of app Candy Crush) for $5.9bn to help Activision to help become successful in the smartphone market.

This is equal to the loss in welfare associated with an indirect tax.

The tax burden imposed on society will depend crucially on the elasticity of the demand curve facing the market. As the less price sensitive consumers are the more of the tax that can be passed onto them in the form of higher prices as it will increase their level of profit despite price rises due to a lack of drop-off in demand.

Below is a diagram to illustrate how the imposition of an indirect tax implaces a burden on society. In this instance the demand curve is neither inelastic or elastic and therefore the tax burden is split evenly between the consumers and producers. It implaces a burden on society equal to the combined amount of producer and consumer burden.

Below is a diagram to illustrate when the demand curve is inelastic and therefore the tax burden is split unevenly towards consumers ahead of producers. It implaces a burden on society equal to the combined amount of producer and consumer burden.

Below is a diagram to illustrate when the demand curve is elastic and therefore the tax burden on producers is small. It implaces a burden on society equal to the combined amount of producer and consumer burden. An elastic demand curve seems to implace the smallest burden on society due to the fact that the firm has to absorb most of the tax.

The amount of money raised by the imposition of a tax i.e. number of units sold x the tax applied to each unit sold.

The diagram below shows the amount of tax revenue a government earns from an indirect tax is equal to the green shaded region. The tax value is just the difference betwen the two supply curves.

Deductions from income or additions applied to the cost of transactions to collect revenue to fund government expenditure.

These are advantages that large firms experience because of increasing and decreasing returns to scale i.e. can buy more efficient equipment that produces lower unit costs, can specialise more and can benefit from the law of increased dimensions.

These are advantages that large firms experience because of increasing and decreasing returns to scale i.e. can buy more efficient equipment that produces lower unit costs, can specialise more and can benefit from the law of increased dimensions.

When a quantify of output is produced using the smallest possible amount of inputs.

When the state of technology changes e.g. when cars started to replace horses and when e-mail started to replace traditional mail.