Notes for F581

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  • Created by: Sanchia
  • Created on: 17-05-12 18:51
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Economic problem - limited resources, unlimited wants
Specialisation - concentrate on a particular product or task
+ raises output per person
+ reducing cost per unit
+ increase overall output
+ division of labour - production is split into many tasks
+ time saving
+ better quality
- immobility of labour
- low job satisfaction
Free Economy - Based on what you can afford.
Planned Economy - The government has a central roll in the allocation of resources.
Mixed Economy - Both the public and private sectors play a role in the allocation of scarce resources.
Decisions involve an interaction between firms, labour and the government, mainly through the
market mechanism.
Opportunity cost - the value of the next best alternative foregone
Production possibility curves - shows the combination of two or more goods and services that can be
produced whilst using all off the available factor resources efficiently
A - consumer goods > capital goods
B - unattainable
C - capital goods > consumer goods
D - attainable but inefficient
Allocative efficiency - where scarce resources are used to produce the goods which consumers want
Competitive Markets
Demand - the quantity of a good or service that consumers are willing and able to buy at a given
price in a given time period
- Income
- Trends / fashion
- Price of substitutes
- Price of complements
- Population
Supply - the quantity of a good or service that producers are willing and able to supply at a given
price in a given time period
- Cost of production - workers, materials
- Subsidies

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- Number of producers in same market
- Changes in price of other good
Consumer surplus - the difference between the price a consumer is willing to pay and the price they
actually pay / market price
Producer surplus - the difference between the price producers are willing to supply and the price
they actually receive
Market Equilibrium - state of equality or a state of balance between market demand and supply
Elasticity of demand the responsiveness of quantity demanded to a change…read more

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Cross prices elasticity of demand measures the responsiveness of demand for a product to a change
in the price of other related products.…read more

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Information failure - When people have inaccurate or incomplete data to make potentially wrong
Smoking - health warnings ignored
Education - benefits of university ignored
Asymmetric information - When somebody knows more than somebody else in the market Market
failure caused as people's incentives to buy and sell are distorted
Auctioning cars - seller knows more about quality than buyer, exploits buyer to spend more
To undo market failure - the government puts legislations in place
Free rider - Public good - non rivalry…read more


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