Competition policy tries to enhance efficiency by promoting or safeguarding competition.

Industrial policy aims to offset externalities affecting production decisions by firms.

Intellectual property is the recognition that the creator of new knowledge may, for a period, own it as an asset from which income may be derived. This temporary legal monopoly is called a patent in the case of inventions and a copyright in the case of works of literature or music.

Research is the process of invention, the creation of new knowledge. Development is the process of innovating to make research commercially viable.

Sunrise industries are the emerging new industries of the future.

Sunset industries are those in the past, now in long-term decline.

Economic geography means that a firm’s location affects its production costs. A beneficial locational externality occurs if a firm’s costs are reduced by locating near similar firms.

The industrial base of a country or region is a measure of the stock of existing producers available to provide such locational externalities.

Producer surplus (profit) is the excess of revenue over total costs. Total costs are the area under the LMC curve up to this output. Consumer surplus is the triangle showing the excess of consumer benefits over spending. It is the area under the demand curve at this output, minus the spending rectangle.

The social cost of monopoly is the failure to maximize social surplus.

At an output below the efficient level, the deadweight burden triangle shows the loss of social surplus.

Cream-skimming confines entry to profitable parts of the business, undermining scale economies elsewhere.

The Office of Fair Trading is responsible for making markets work well for consumers, by protecting and promoting consumer interests while ensuring that businesses are fair and competitive.

The Competition Commission investigates whether a monopoly, or potential monopoly, acts as ‘a substantial lessening of competition’.

A firm makes a takeover bid for another firm by offering to buy out the shareholders of the second firm.

A merger is the voluntary union of two firms that think they will do better together.

A horizontal merger is the union of two firms at the same production stage in the same industry. A vertical merger is the union of two firms at different production stages in the same industry. In a conglomerate merger, the production activities of the two firms are unrelated.