Entire Micro (unit 1 F581 markets in action) revision notes

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Economics revision notes
The economic problem- Scarce recourses and infinite wants . Scarcity is limited or finite recourses that
cannot meet wants. We have infinite wants as they are continuously growing due to the desire for a
better quality of life and so the scarce resources cannot meet this.
The factors of production- These are land, labour, capital and enterprise and are the main groupings
of recourses used for production of goods and services that can be scarce in an economy.
Free goods and Economic goods- An economic good is one that has a price and which reflects the
scarcity of that good. A free good is something so abundant like rainfall it cannot be charged for
Specialisation - Where a factor of production is devoted to a specific job in the production process
leading to efficient usage. It is concentration of efforts on a narrow range of tasks
Worker specialisation
Advantage Disadvantage
Greater output per worker Low pay
(productivity) poor quality of labour due to boredom
Workers well skilled in that area Ethical issues with exploitive factory
No down time techniques
No recruitment problems High staff turnover
cheaper products or higher profits Workers less flexible
Training costs lower as workers only High striking force
trained in one area Structural unemployment
National specialisation
Advantage Disadvantage
Increase national output Recourses may not be wisely invested
Raises living standards Finite recourses can be depleted
Widens the range of products in other Loss of jobs in certain sectors
economies so new products can be Loss of one product can upset the whole
introduced in the domestic market economy
Export lead growth Consumer needs may change
Efficient production jeopardising the export market
Lower labour costs so lower prices Shocks like terrorism can be acutely felt
higher quality produces Could be surpassed by new technology
monopoly power.
Opportunity cost- The next best alternative forgone for the chosen
option. This is due to scarce recourses only being possibly allocated
once.
Production possibility curve- Maximum combination of the output of
two goods that an economy is capable of making assuming that all

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It is the shape it is because certain resources
are better suited to making certain goods and so will be less efficiently used elsewhere
Trade off- A gain in one area offset by a loss in another due to the opportunity cost.
Market- Somewhere buyers and sellers can go to decide a price for a product or service. there are 3
types of economy; a planed, a market and a mixed.…read more

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Equilibrium- The point where demand matches supply where the price and quantity can be measured
from.
Supply- The amount of a commodity that producers are willing and able to supply over a given range
of prices and period of time. At higher prices a higher quantity will be supplied than at lower prices
because higher profits can be made. Price and supply have a positive relationship.…read more

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Necessities and addictive products like petrol and cigarettes are inelastic
Evaluating PED- If prices are elastic they should decrease prices to increase total revenue however
this depends on the their capacity and starting price of the product. if it is inelastic they should
increase prices but this risks the product becoming elastic and it encourages more competition and a
tend to becoming elastic.…read more

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Efficiency- Utilizing resources to maximise the production on the PPC so that waste is minimal or non
existent
Allocative inefficiency- The market is in equilibrium with demand and supply meeting at the
equilibrium price so there is no shortage or excess supply
Competition- Competitive markets are ones where firms competing for customers have to become
more efficient to survive and achieve profitability.
Market failure- This is when markets fail to deliver economic efficiency through the misallocation of
resources.…read more

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Asymmetric information is when both sides
may not have the same information if the seller doesn't pass on information.
Government intervention is a way of solving market failure. There are market and non market
solutions with economists preferring market based solutions which are a manipulation of existing
market mechanisms.
Taxation- A tax imposed on a producer and paid by the producer or sometimes passed onto the
consumer.…read more

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Government failure- Occurs when the cost of intervention is greater than the benefits of that
intervention. It is caused by;
Inadequate information - Problems of shadow pricing positive and negative externalities.
Over valuing of negative externalities leading to over taxation or regulation damaging UK
international competitiveness
Conflicting objectives - conflict between economic efficiency and being equitable to all.
Petrol tax is an example as low income groups are hit more.
Administration costs- Regulation can be expensive to pursue due to legal costs and
enforcement.…read more

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