First 438 words of the document:
Scarcity is a situation that arises because people have unlimited wants in the face of limited resources.
Opportunity cost in decision making is the value of the next best alternative forgone.
Market economy is one in which market forces are allowed to guide the allocation of resources within a
Planned economy is one in which the government undertakes the co-ordination role, planning and directing
the allocation of resources.
Mixed economy is when market forces are complemented by some state intervention.
4 Factors of production:
Division of labour; a process whereby the production procedure is broken down into a sequence of stages, and
workers are assigned to particular stages
Opportunity cost: in decision making, the value of the next-best alternative forgone.
PPF Curve is a curve showing the maximum combinations of goods or services that can be produced in a set period
of time given available resources.Economic growth is an outward growth in the productivity capacity of the economy.
This can be shown on a production possibility curve by the curve shifting to the right.
GDP: The total output of an economy like the UK is measured by its gross domestic product
Competitive market: A market is a set of arrangements that allows transactions to take place
Determinants of demand and supply.
The law of demand states that there is an inverse relationship between quantity demanded and the price of a
Ceteris paribus is a Latin phrase meaning "other things being equal."
Factors which affect demand include: Factors which affect supply are:
Price of other goods (compliments and substitutes) Production costs
Disposable Income Economic climate
Fashions, personal preferences Legislation
Normal goods: when income rises the demand for it does as a response
Inferior goods: goods which the demand for decreases in response to an increase in income. Products such as
Tesco own brand or public transport
Substitute goods: goods that increase in demand as a result of an increase in price for another good. For
example an increase in Tea may result in an increase in demand for coffee
Compliment goods: are goods which have an increase in demand when the price of another good decreases or
demand increases. For example tea and milk are compliments so as demand for tea increases demand for milk may
Consumer goods: are for present use
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Capital goods: are to be used to increase the future capacity of the economy, investment goods
Merit goods: are goods that bring unanticipated benefits to its customers such that society believes that it should
be consumed by individuals regardless of whether they have the means or willingness to do so, e.g.…read more
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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 e.g.…read more