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Page 1

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Economics 1st term

Market failure is where a market fails to allocate resources efficiently

Things that are over produced:

Fast food (evidence: obesity)
Illegal drugs

Government failure is when the government fails to allocate resources efficiently leading to welfare

Welfare loss means society has a fall in…

Page 2

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Economics 1st term

Merit goods have qualities of:

1. Being under provided by the price mechanism, the government gives merit goods because
of paternalism and because of public interest, it also benefits the government.

2. Positive externalities- a positive effect on a third party from a transaction (e.g. an educated…

Page 3

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Economics 1st term

Monopoly strengths: Weaknesses:
Uniformity of price to all consumers, consumers Force down supplier prices
are charged the same price
Unlikely to go bankrupt Fore up consumer prices
Will be producing their good/service meaning its Make large profits due to the above points
always provided
Economies of scale;…

Page 4

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Economics 1st term

Economics means; the social science that deals with the production, distribution and consumption of
goods and services and with the theory and management of economies or economic systems.

The three questions:

1. What to produce
2. How to produce
3. Who to produce

The basic economic problem…

Page 5

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Economics 1st term

This considers how the rainforest issues are resolved with firms producing Q1 amount of timber at
price P1.

The equilibrium is determined by the interaction of demand and supply resulting in Q1 being
produced at P1

However if society was taken into account we would use the…

Page 6

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Economics 1st term

Tradable pollution permits (i.e. you pay for the right to pollute, it can be traded or sold)

Information failure:

Many goods frequently purchased e.g. cans of soft drink; buyers are familiar with and can make
informed decisions.

However for many goods, that is not the case, e.g.…

Page 7

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Economics 1st term

Reasons why buffer stock schemes may be ineffective:

Floor/ceiling price badly chosen
Cost of scheme, e.g. storage
Inadequate stocks when needed
Perishability of crops
Incentive to over produce

Reasons why a buffer stock scheme may be beneficial:

To reduce price/instability of income
Enables planning for future

Page 8

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Economics 1st term

Key words:

Ceteris paribus means all other things remain the same

The basic economic problem is that of scarcity

When a consumer makes a choice, he will choose the goods which give him the maximum utility or

The cost of this choice is known as the…

Page 9

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Economics 1st term

Factors that affect demand:

Quantity demanded is only affected by price

A change in demand is effected by any other factor except price.

Consumer surplus- the difference between how much buyers are prepared to pay for a good and
that they actually pay.

The supply curve


Page 10

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Economics 1st term

Producer surplus:

Producer surplus at price P is... PCB

Producer surplus at price P1 is .... P1CA

The change in producer surplus is (+ or -) .... P1 a p b


Specific tax: Is a unit tax i.e. a specific amount of one unit, 10 p…


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