ALL AS ECONOMICS NOTES WJEC

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  • Created on: 13-05-13 19:01
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MARKETS AND SOCIETY
THE BASIC ECONOMIC PROBLEM
Opportunity cost - the next best alternative foregone
Firms Firms may have to decide whether to invest in new machinery or to
increase dividends to shareholders
Government The government may be faced whether to allocate money to the
NHS or to education
Individuals Individual may have to consider whether to buy one product or
another
Individuals may have to consider whether to work extra hours or
spend time at home
Production Possibility Frontiers
pens
At points a, b and c production is at maximum
where all factors of production are employed fully
and used efficiently
a
90
At point x not all factors of production are fully
60 b employed and/or being used inefficiently
x
e.g. in order to produce 90 guns, the economy
40 c
must forego 40 guns
60 80 90 guns
The PPF is curved as not all factors are equally suited to each other. The factors of production to
increase from 80 to 90 guns are far better suited to producing pens.
pens
A shift may be caused by:
An increase in the quantity of the factors of
production
Improvements in efficiency or new technology e.g. IT
guns
Kyren Routledge

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Specialisation
pens Advantages
Workers can be assigned to well suited tasks
Workers `learn by doing' - efficiency through experience
Saves time changing tools
Makes it cost effective to provide specialist capital
equipment for workers
guns
Disadvantages
Workers get bored of doing repetitive tasks
Regions or countries that specialise are dependent on
other regions or countries for obtaining other products
Productivity - measures output per input e.g.…read more

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Demand curves are usually negative sloping because:
· a fall in the price makes the good cheaper relative to substitutes
· a fall in price increases the consumers purchasing power and may encourage them to
buy more of the good
Exceptions
Veblen goods a fall in the price of a luxury product that is consumed for
ostentation may result in a fall in demand as if the price falls
then it loses some of its `kudos' and consumers will switch to
more expensive and exclusive…read more

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Market equilibrium - When the market clears, demand equals supply.…read more

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Consumer and Producer Surplus
P
S
Consumer surplus
PE
Producer surplus
QE Q
Consumer surplus - the difference between what customers are willing to pay for a good
or service and what they actually pay
Producer surplus - the difference between what producers are willing and able to supply
a good for and the price they actually receive
Elasticity
Price elasticity of demand - the responsiveness of demand to changes in price
% change in the quantity demanded of good X
PED =
% change…read more

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Price elasticity of demand
0 perfectly inelastic
0-1 inelastic
1 unitary elasticity
1- elastic
perfectly elastic
Factors that effect price elasticity of demand
· Number of close substitutes within the market
· Luxuries will have a more elastic curve
· Necessities will have a more inelastic curve
· Percentage of income spent on good
· Habit forming goods
· Time period - demand tends to be more elastic in the long run
PED and pricing decisions
When a good is price elastic a fall in…read more

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Factors effected cross price elasticity of demand
· Level of spare capacity
· Suitability of factors of production
· Level of stocks
inelastic short run
elastic long run
· Time period
· Production lags
RESOURCE ALLOCATION AND MARKET FAILURE
Price has three functions:
Rationing function The increase demand for the good creates an excess demand
for the product at the current price.…read more

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Asymmetric information is when there is imperfect knowledge. In particular where one
party has different information to another. For example when selling a car, the owner is
likely to know the full service history and likelihood of breakdown. But the potential buyer
in contrast will be in the dark as he may not be able to trust the salesman.…read more

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State Provision
S (fixed by government)
P
In some cases e.g. healthcare in the UK
and education the government rather
than subsidising goods will pay for them
entirely making them free of charge (this
is usually merit goods)
D
Excess demand Q
at zero price
Maximum Prices
P S
A maximum price is a price ceiling. To be
effective it must be set below the market
equilibrium. A maximum price above the
P
equilibrium has no effect.…read more

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National Minimum Wage
The NMW can generate unemployment in the form of excess supply of labour
An increase in NMW may help to alleviate poverty but it can lead to job losses because of
raising costs for firms
Male and female pay may be more equal - helping women.…read more

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meg

definitely the most valuable document I've had for revision, I literally can't thank you enough!

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