unit 1

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  • Created on: 12-01-13 13:43
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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 of good normal shift in S curve
Subsidies- tends to decrease price due to an increase in supply
Grant usually provided by the government to increase supply
Often paid directly to producers
WHAT DETERMINES THE WAGE RATE?
Supply for labour
Quality, quantity of labour hours offered for work over a given time period
Net migration
Wage rate
Income tax
Trade unions
Gov regulations
Demand for labour
Remember it is derived demand meaning demand for one good/service occurs as a
result of demand for another
Demand for final labour wage rate
Price of other factor inputs
Productivity of labour
Government employment regulations
NATURE OF ECONOMICS
Positive/Normative statements
Positive= facts think of it as positive is correct
Normative= value judgements think of it as the norm that people think but that's only their
opinion
PPF

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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 where individuals concentrate on producing a particular good
Advantages: highly skilled,no time wasted,less time required for employee training, more
choice of jobs,higher output per worker, reduces cost of output
Disadvantages: repetition=boredom=high turnover of staff, structural…read more

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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 market knowledge, labour immobility, unstable
commodity markets- this is bound to come up and we all know it!
Government failure
When gov intervention to overcome market failure fails-they are idiots so don't trust them !…read more

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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 to encourage production and consumption of goods that have
high external benefits
Advantages: reduces pollution , encourages greener energy use to promote sustainable
economic growth
Disadvantages: opportunity cost to the government, firms may become inefficient…read more

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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 property will have a better knowledge of its value.
There will be a direct transfer of resources from the polluters those who suffer. With
regulation it isn't those who suffer that receive the compensation.…read more

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