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HOW A CHANGE IN PRICE IS EXPLAINED

SUPPLY SIDE

Tax-tends to increase price due to a decrease in supply

Direct

Levied directly on an individual or organisation

Indirect

Ad valorem: charged as a % of the P of a good pivotal shift in S curve
Specific: fixed amount per unit…

Page 2

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Maximum potential level of output for 2 goods/services that can economy can achieve when
all resources are fully employed
Outwards= growth due to increase quality/ quantity of resources, education/grants & new
technology
Inwards shift= decrease in economic potential due to war/natural disaster

Division of Labour

It's a form of specialisation…

Page 3

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Complementary: negative XED

WHY DO SOME MARKETS FAIL? ­ LETS BE HONEST THEY ALL DO SO THIS IS BOUND TO COME UP IN
THE DATA RESPONSE SO YEAH DON'T IGNORE!

Market failure

When the P mechanism causes inefficient allocation of resources and leads to net welfare
loss
Externalities, public goods,imperfect…

Page 4

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Private costs= costs internal to the firm
Social costs= external plus private costs
Positive GOOD
External benefits= occurs in the production or consumption of good/service
Private benefits-= benefits internal to the firm
Social benefits= external plus private benefits



WAYS TO CORRECT A MARKET FAILURE

Subsidies

Grant provided by the gov…

Page 5

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E.g. It gives water companies the right to charge companies who pollute the rivers
and seas. Extending property rights is a method of internalising the externality.

Advantages of extending property rights are

The government doesn't have to assess the value of property as it is assumed the
owners of the…

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