Firms & Labour Markets is a core part of A-Level Economics. Revise the key concepts and common mistakes below, then lock them in with the free games.
Key concepts
Game TheoryStudy of strategic interaction among rational agents.
Prisoner's DilemmaGame where both confess despite mutual silence being better.
Dominant StrategyBest move regardless of what the rival does.
Nash EquilibriumNo player gains by changing strategy alone.
Payoff MatrixTable showing outcomes for each strategy combination.
Cooperative OutcomeBest joint outcome if both cooperate.
Kinked DemandDemand curve with a kink at the prevailing price.
Price LeaderDominant firm setting price followed by rivals.
Price WarMutual price cutting that destroys margins.
Non-Price CompetitionCompeting on quality, advertising, loyalty.
Tacit CollusionCooperation without formal agreement.
Overt CollusionFormal price-fixing cartel - usually illegal.
CartelGroup of firms colluding to raise prices.
Cheating IncentiveEach member can profit by undercutting privately.
Common mistakes to avoid
Questions where students often pick the tempting wrong answer — make sure you know the right one:
What does dependency theory argue about development?✗ Dependency theory means poor countries are simply lazy. ✓ Poorer 'periphery' countries are kept underdeveloped by their economic relationships with rich 'core' countries — through unequal trade, debt and historical colonialism. It challenges the view that integration with rich economies automatically helps.
What is the difference between a shift in demand and a movement along the demand curve?✗ A change in price shifts the demand curve. ✓ A movement along the curve is caused by a change in price; a shift of the whole curve is caused by changes in other factors (income, tastes, substitute prices).
What is opportunity cost?✗ Opportunity cost is the total of everything you give up when making a choice. ✓ The value of the next-best alternative foregone when a choice is made — the real cost of a decision in terms of what you give up.
In the standard prisoner's dilemma, the Nash equilibrium is:✗ Both stay silent ✓ Both confess
A dominant strategy means:✗ Must be played first ✓ Best move regardless of opponent's choice
Practise Firms & Labour Markets — free games
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