AS market failure notes

I have a *few* things missing.

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  • Created on: 12-05-11 11:23
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The reasons for individuals,
organisations and societies having to
make choices
The central economic problem of scarcity, which arises from infinite wants and finite
Finite economic resources/factors of production of land, labour, capital and
How scarcity gives rise to choice, exchange and specialisation.
Markets as an approach to the problem of scarcity.
Concepts of opportunity cost
the production possibility curve
Candidates should be able to:
describe what economists mean by `the economic problem';
Definition: how to allocate scarce resources among alternative used.
choices have to be made among many alternatives that are available , as money is
not available to buy what we want/ resources are scarce in relation to unlimited wants
Scarcity and choice faced by firms, governments, economies and households
different levels of the economic problem
understand the different factors of production as economic
land a natural resource. Includes mineral deposits such as oil and coat, rives lakes,
Labour a human resource available in an economy. You should consider the quantity
and quality of the labour force too, for example in the poorest countries they may
suffer from a lack of well trained and well educated work force, but in contrast
countries such as Germany have declining populations but reply on immigrant
workers to do both skilled and unskilled jobs. The quality of labour is essential for
economic progress.
Capital a physical resource man made aid for production. With a function of
producing goods and services when combined with land and labour. Examples of
capital are factories, office blocks, information technology, machinery, and

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Entrepreneurship human capital. Two main functions to organise other factors of
production in order to produce goods and services. And the second refers to the
ability and inventiveness of those who are prepared to take risks such as Richard
Explain how specialisation can be used to address the problem of
Definition: It's a situation where individual workers, firms, regions or economies
concentrate on a particular task or upon producing some goods and services and not
others.…read more

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Command/ centrally planned economy: an economic system in which most
resources are state owned and also allocated centrally
government has central role in the decisions that are made in terms of what
is produced, how it is produced and for whom to produce
decision making is by planning boards and organisations, in principle
production is controlled by the state
what is available to consumers and manufacturers is determined through
key feature: central government and its organisations are responsible for the
allocation of resources
production…read more

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The opportunity cost of deciding not to work is the lost wages foregone
The opportunity cost of spending money on a foreign holiday is the lost
opportunity to buy a new dishwasher or the chance to enjoy two short
breaks inside the United Kingdom
The opportunity cost of the government spending £20 billion on interest
payments on the national debt is the extra money it might have allocated
to the National Health Service
The opportunity cost of an economy investing its resources in new capital…read more

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Moving from Point A to B will lead to an increase in servics (2225). But, the opportunity
cost is that output of goods falls from 15 to 11.
At point C, the economy is inefficient. We can increase both goods and services without
any opportunity cost.
The curve can also be used to show trade off, involved in the production of these two
Technology, prices and consumer welfare
Improved technology should bring market prices down and make products more
affordable to the consumer.…read more

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PPF, as more resources are allocated towards Good Y,
the extra output gets smaller ­ and more of Good X has to be given up in order
to produce the extra output of Good Y. This is known as the principle of
diminishing returns. Diminishing returns occurs because not all factor inputs
are equally suited to producing different goods and services.…read more

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The PPF does not always have to be drawn as a curve. If the opportunity cost for
producing two products is constant, then we draw the PPF as a straight line. The
gradient of that line is a way of measuring the opportunity cost between two goods.…read more

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Competitive markets and how they work
The nature of a competitive market and its role in influencing choice and achieving
an optimum allocation of scarce resources.
1) Candidate should be able to Understand what is meant by a `competitive market'
Competitive markets exist when there is genuine choice for consumers in terms of who
supplies the goods and services they demand.…read more

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There are price fluctuations so if the producers put more of their products
on the market more likely that prices will fall, this will also be a reason why
buyers may hold back from purchasing a product. In contrast, if producers
restrict what they are willing to sell, prices are expected to increase.…read more

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If the rise in prices is greater than the rise in money income, then the real
income has actually fallen, assuming no change in deductions such as income
tax. This isn't good, as it reduces the ability to pay for goods and services.
o Increase in consumers income is a most usual reason for demand, as more
income allowed consumers to have more spending power, and buy more
goods and services.…read more



This is a 48 page summary of the entire unit 1 AS course. Well written with good diagrams it is a good revision guide.

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