A leveraged buyout occurs when a firm is bought by a group of investors who borrow a large proportion of the money needed to buy a target firm. Often the investors will use the assets of the target firm as collateral for borrowing money. Leveraged Buyouts are often highly aggressive methods of taking over an …
Limit Pricing is a pricing strategy a monopolist may use to discourage entry. If a monopolist set its profit maximising price (where MR=MC) the level of supernormal profit would be so high it attracts new firms into the market. Limit pricing involves reducing the price sufficiently to deter entry. It leads to less profit than …
A list of building societies in the UK that gave up building society status (non-profit making, owned by members) and become profit making PLCs. This process is known as demutualisation. List of former building societies and date of demutualisation. Abbey National 1989 – Converted to PLC now known as “Santander”, it is part of Spanish …
Definition: The Lorenz curve is a way of showing the distribution of income (or wealth) within an economy. It was developed by Max O. Lorenz in 1905 for representing wealth distribution. The Lorenz curve shows the cumulative share of income from different sections of the population. If there was perfect equality – if everyone had …
In behavioural economics, loss aversion refers to people’s preferences to avoid losing compared to gaining the equivalent amount. “losses loom larger than gains” (Kahneman & Tversky, 1979) For example, if somebody gave us a £300 bottle of wine, we may gain a small amount of happiness (utility). However, if we owned a £300 bottle of …
A loss leader is a product that is sold at less than cost. The firm sells this product at a loss as a way to encourage consumers to shop and buy other goods. The firm hopes to recoup the lost profit by increased sales of more profitable items. A good example of a loss leader …
The marginal efficiency of capital displays the expected rate of return on investment, at a particular given time. The marginal efficiency of capital is compared to the rate of interest. Keynes described the marginal efficiency of capital as: “The marginal efficiency of capital is equal to that rate of discount which would make the present …
Marginal propensity to save (MPS) refers to the proportion of any extra income that is saved by consumers. For an individual, the marginal propensity to save will reflect how much they want to put extra income into different forms of saving. For example, if a worker receives a pay rise of £1,000 and they add …