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Economics Revision.

What is an economy?
An economy is a system which tries to balance the available resources of a country (land,
labour, capital and enterprise) against the wants and needs of consumers.

Economic problem.
Scarcity is a situation that arises because people have unlimited wants in the face of…

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Disposable Income.
Fashions, personal preferences.



Factors which affect supply are:
Tax.
Production costs.
Economic climate.
Legislation.

Goods ­ Normal, inferior, substitutes and compliments.
1. Normal goods are goods which the demand for increases in response to an increase in
income.
2. Inferior goods are goods which the demand for decreases…

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Consumption externalities are externalities that affect the consumption side of a
market, which may be positive or negative.
Production externality: an externality that affects the production side of a market,
which may be positive or negative.





Internalising an externality is an attempt to deal with an externality by bringing an…

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Government failure is a misallocation of resources arising from government intervention.
Market failure: is a situation in which the free market mechanism does not lead to an optimal
allocation of resources ­ for example, where there is a divergence between marginal social
benefit and marginal social cost.

Taxation ­ Direct…

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