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Transport economics keywords
Define: Transport
The movement of people and goods for personal and business reasonsProfit
The difference between revenue and costsDefine: mode of transport
Means of transport, basically road, rail, air and sea transportInfrastructure
Anything that provides for the operation of transportDefine: Derived demand
Demand that depends upon the final output that is producedForecast
A future estimate usually based on past informationDefine: Privatisation
Sale of state-owned business activity to the private sectorDemand
Is the quantity of a product consumers are wiling and able to buy at a particular price in a specified time period. Data to draw the curve is from a demand schedule.Define :Effective demand
When a consumers desire to buy something is backed up by a willingness and an ability to pay for itDefine: National (Latent) Demand
Exists when there is a willingness to purchase a good or service, but where the consumer lacks the real purchasing power to be able to afford the product.Derived demand
Where demand for one good/service occurs as a result of demand for another. E.g. demand for coal, leads to miningSpeculative Demand
Potential buyers are interested not just in the satisfaction they may get from consuming the product, but the potential rise in market price leading to capital gain or profitElasticity
The extent to which buyers and sellers respond to change in market conditionsDefine: market power
Market power refers to the ability of a firm to influence or control the terms and condition on which goodsWhat is a contestable market?
A contestable market has no entry barriers - firms can enter or leave an industry costlessly. The threat of potential entry encourages imperfectly competitive to set price and output at or close to the perfectly competitive price and output.Define asymmetric info
Occurs when somebody knows more than somebody else in the market. This can make it difficult for 2 people to do business togetherExamples are a mortgage lender does not know how likely a borrower is to repay their loan in future yearsA used car seller knows more about the quality of the car being sold than the buyers.Consumer surplus
The difference between the price that consumers are willing to pay and the actual price of the good.Producer surplus
Represents the difference between the price suppliers are willing to sell and the actual price of the good.Labour 5
the quantity and quality of human resources available in any economy. In LEDCS there are large populations but a lack of skilled workers. In Germany and Italy there are declining populations so rely on immigrants to do skilled and unskilled jobs. The quality of labour is essential for economic progress, India is of growing importance to the global economy. The value of a worker is called human capital, increased by education and training.Composite demand
When a good is demanded for two or more distinct usesJoint demand
Where two or more complements are brought togetherJoint supply
When two or more goods are produced together, so a change in supply in one will change the supply of the other.Complement
A good that is bought with another good to satisfy a want, torch and batteriesMarket clearing price
The price that there is neither excess demand or supply, everything offered for sale is purchased.Productivity
Output per unit of input employedDefine: information failure
A lack of information resulting in consumers and producing making decisions that do not maximise welfare.Normal good
A good where demand increases when income increasesInferior goodDemand falls when income increasesCompetitive markets
The fact that markets are competitive means that prices fluctuateIf buyers hold back from purchasing a product or suppliers put more of a product on the market the price will fall.Define: disposable income
Income after taxes on income have been deducted and state benefits have been addedDefine: real disposable income
Income after taxes on income have been deducted and state benefits have been added and the result has been adjusted to take into account changes in price level.For example if your salary increases by 5% but prices rise by 3% then you get an increase of 2%. If rise in prices is greater than that of income then, real income falls, the ability to pay for goods and services has fallen.Define: trade off
A trade off is the sacrifice of one item for another. E.g. govt might trade off more hospitals for fewer schools.Economies of scale
refer to the reduction in long run unit costs that come when a firm grows in size and produces on a large scale.Mass production results in lower long run average cost.Internal economies of scale are the lower average costs an individual firm can gain as it grows in size. External economies of scale are the lower average costs an individual firm can gain from being in a growing industry.Define: capacity utilisation
The extent to which firms are using their capital goodsIf they are at full capacity they are likely to increase investmentDefine: Consumer durables
items that provide a flow of services to a consumer over a period of time.new cars, household appliances, audio-visual equipment, furniture etc. The real level of spending on durables has increased in the last eight years.Define: GDP
Gross domestic productThe total amount of goods and services produced in a country, in a given period of time.Define: Multiplier effect
The process by which any change in a component of AD results in a greater final change in real GDPProtectionism
The protection of domestic industries from foreign competitionExample of privatisation
British Rail was privatised in 1994 but the failure of Railtrack led to the creation of Network Rail, a not for profit company in 2002. The Labour Government has continued to privatise or part-privatise other parts of the UK public sector since it came to power in 1997.Define: Costs
The value of inputs
Fixed Costs
Costs that are independent of output produced
Define: Variable costs
Costs that are directly related to the level of output producedTotal costs
The total cost of production or provision of a serviceDefine: Average cost
The unit cost of productionMarginal costThe change in the total cost when one more unity of output is producedRevenue
Receipts from salesDefine: Price maker
A firm that has control over the market pricePrice taker
A firm in a competitive market that has to accept the market priceTotal revenue
Quantity multiplied by priceDefine: Average revenue
The total revenue divided by quantityMarginal revenueAddition of total revenue from one additional saleDefine: Short run
Time periods when a firm is unable to change factors of production except for one, usually labourLong run
Time periods when all factor inputs can be changedDefine: Minimum efficient scale
The lowest level of output where long-run average cost (LRAC) is minimisedTechnical economies
Increased capacity or a technological development that results in lower long run average costsDefine: Purchasing economies
Reduced unit costs due to bulk buying of inputs into a businessManagerial economies
Savings in long-run average costs due to the specialisation of managementFinancial economies
The cost savings that large firms may receive when borrowing moneyDefine: Diseconomies of scale
Causes of an increase in long-run average costs beyond the point of minimum efficient scaleExternal economies of scale
Falling long run average costs that benefit all firms in an industryDefine: Price satisficing
Where a firm makes a reasonable level of profit that satisfies its stakeholders without maximising profitSales revenue maximisation
An objective where a firm produces where marginal revenue is zeroDefine: profit maximisation
The objective of firms that is achieved where marginal cost= marginal revenueSales maximisation
An objective that involves the maximisation of the volume of salesDefine: Supernormal profit
Profit that s more than the normal profitCross-subsidisation
A business practice where revenue from profitable activities is used to support loss-making ones.Define: Normal profit
The level of profit that keeps a firm in a particular activityMarket structure
The characteristics of a marketBarrier to entry
Obstacle to new firms entering a marketDefine: Concentration ratio
The proportion of the total market share between the nth largest firms Allocative efficiencyWhere price is equal to marginal cost
Monopoly
A single firm in a marketDefine: Productive efficiency
Using the least possible amount of scarce resources to produce the maximum amount of output.Natural monopolyWhere a monopolist has overwhelming cost advantageDefine: Price discrimination
Where a monopolist charges different prices for the same product in different marketsContestable marketA set of conditions where there is always the threat of new firms being able to enter the marketDefine: Dynamic efficiency
Where unit costs are lowered over timeMonopolistic competitionA market structure with many firms producing a differentiated product and where there are few barriers to entry and exitDefine: Product differentiation
Where there are minor variations in the types of products on offerDeadweight lossLoss to society of the firm producing where price exceeds capacityDefine: excess capacity
A consequence of firms producing at above the minimum point on the average cost curveNon-price competitiveCompetition between firms on the basis of for example branding, customer service, range of products, advertising etc.Define: Oligopoly
A market dominated by a few large firmsKinked demandIndicative of price rigidity in oligopolyGame theoryA means of modelling the behaviour of firmsDefine: Collusion
Where firms tacitly or otherwise agree to not compete on prices, service provision and other matters that might adversely affect mutual well-beingInterdependent
Where the actions of one firm provoke counter-action by othersDefine: Hit and run entry
The way in which a firm enters a market where supernormal profits are being earned and leaves when profits return to normalContestability
The extent to which barriers to entry and exit in a marker are free and costlessDefine: Deregulation
Occurs when the government deliberately remove official regulations that act as a barrier to competition in a market. Supply side policyFacilitates contestabilityDefine: Sunk costs:
Define: harmonisation
Establishing common set of rules and regulations to be followedThe means by which a level playing field is created in EU transport marketsLiberalisation
(same as deregulation)The means by which barriers to entry should be removed to give equal access in all national markets to transport providers based within the EUDefine
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