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The economic problem

Scarcity, Resources which are needed to produce any good or service are
scarce. Limited.
Resources are split into four categories:
+ Land: all resources that can be used to produce goods
and services. Eg. Timber, fish, oil, wind and rain
+Labour: All human effort, physical and mental…

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Markets

Economy: an area in which parties produce and buy goods and services. Eg.
`The Uk economy,' `The local economy,' `The global economy'

Production: any activity designed to satisfy wants and needs, producing
goods and services

Consumption: using up goods and services to satisfy wants and needs.

Exchange: few people…

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Economic rent: the amount of money a factor of production earns minus its
transfer earnings.

Wealth, social wealth ­ assets owned by the government for the benefit of
the public.
Private wealth ­ assets owned by individuals and private firms.
Social wealth + private wealth = national wealth

Wealth: a…

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Some countries have tried to plan the answers to the
economic problem (what? How? For whom?) eg. USSR, China
The government owns all the factors of production
Private enterprise is not allowed
Government planners decide how all the scarce resources are
allocated
Advantages:
Everyone gets a fair share of produce…

Page 5

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change in the availability of resources

Problems:
Work may become boring (repetition for workers)
Workers may feel alienated (do not see whole finished
product)
People/countries become dependant on each other
Products are all the same
Not suitable for all types of production
Some firms may become too efficient, putting other…

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Related goods, substitutes and compliments eg. MP3 players
and iPods, tennis rackets and tennis balls. It goods are
complements they are equally demanded, Car and car
insurance. Most products have alternatives
Seasons, goods may be affected by season, eg. Christmas
trees

Price elasticity of demand, measures the responsiveness in demand…

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XED=%QD of good x/%P of good y

Substitutes have a positive XED, as the prices of one good rises the
demand for the other good increases.
Complements have a negative XED, as the price of one good rises the
demand for the other falls.
An XED of 0 indicated that…

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Nature of a product, can it be stored? Is so more elastic

Significance of PES, firms wish to make their supply as elastic as possible so
that they can respond quickly to changes in demand. Government aim
increase the PES as it allows quicker allocation of resources and raises
mobility…

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Economies of scale, the benefits a firm receives in the form of lower
longrun average costs as a result of production on a large scale.
Split into internal, cost savings resulting from a firm being large, and
external, cost savings to firm resulting from being in a growing market.



Internal…

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Ancillary firms, in areas with lots of firms in the same market,
other firms will arrive to cater to the others' needs.
Cooperation, if firms locate together they tend to help each
other even though they are in competition. Eg. delivering costs
cheaper as they are close together
Eg. Tottenham…

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