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Micro economics notes

The economic problem: how to allocate scarce resources among alternative uses

The basic economic problem is how to allocate scarce resources these resources are also
factors of production the main factors of production are
land this is a natural resource includes minerals and deposits like oil ect…

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A production possibility curve is to show resources being allocated.

A PPC shows the maximum quantities of different combinations of output of two products,
given the current resources and state of technology

Draw a PPC here for televisions and tvs

Then show how it can shift along the PPC it…

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The market economy

An economy that is biased on demand and supply as to where the scarce resources are
allocated the government has little or no intervention. Households and firms interact as
buyers and sellers
Excess of supply > fall in price > firms un willing to supply > increase…

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in most markets there is always consumers that are willing to pay over the market price for a
product. Consumer surplus is the extra amount that consumers are prepared to pay for a
product above the price they paid.

Calculation of total expenditure and total revenue

Data that is drawn…

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L egisation
O other eg weather
T echnology
I industry (size ect)
S ubsidies/ tavation

These factors can shift supply to the left and the right In a diagram.

How prices are determined

Price is the amount of money paid for a given good or service, prices are determined by…

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Price inelastic: where the percentage change in quantity demanded in in sensitive to
a change in price.

Determinants of price elasticity
A substitute good, if there is a close substitute then consumers will be more price sensitive
cause the elasticity to be more elastic.

The relative expense the product has…

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The responsiveness of demand for one product in relation to a change in the price of another

%change in demand for product A
% change in price of product B

a positive estimate would suggest that the two goods are substitute goods and a negative
estimate would suggest complementary…

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conditions of the market may change before production is reached making these more

Time period
If it takes long for supply to adjust then they will be more inelastic, In the long term supply
will generally be more elastic.

Business relevance
This is always positive, in short term price…

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Information failure

A lack of information resulting in consumers and producers making decisions that
do not maximise welfare.

Economic efficiency is when allocation of resources is maximising welfare for the consumer,
however in practise the ability of consumers to benefit in these terms is biased on them
having accurate, up…

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costs would be the price and the benefit is the additional passengers that are able to travel
through the addition.
External costs and external Benefits

This is when the externalities fall on third parties.
External costs: the costs that are the consequence of externalities on a third party
External benefits:…


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