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Nature of economics
Positive / Normative statements

Positive= facts, scientific approach
Normative= value judgements, should,ought,better,fair etc.

Opportunity cost

Value of the next best alternative forgone

Types of economies

Free market- decided by the price mechanisms
Centrally planned- government makes all decisions
Mixed- decisions are made partly by the private sector…

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Elasticity
PES

Price elasticity of supply: % change in quantity supplied/ % change in price
Determinants: level of spare capacity, state of economy, ease of entry into market

PED

Price elasticity of demand: % change in quantity demanded/% change in price
Determinants: availability of substitutes, luxury/necessity, addictive good, time
period(…

Page 3

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Subsidy is often paid to directly to producers, but also reaches consumers as output
has increased




What determines wge
rate?
Supply for labour

Quality, quantity of labour hours offered for work over a given period of time

Determinants

Net migration = boosts economy
Wage rate= increase= encourage people to work…

Page 4

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What determines the
price of a good in a
market?
Consumer +producer surplus

Consumer surplus: extra amount of money consumers are willing to pay above what
they actually pay
Producer surplus: extra amount of money paid to producers above what they are
willing to accept

Equilibrium

Balance in market ,…

Page 5

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Occurs when government intervention to overcome market failure fails itself
Poor information: politicians may have poor info about type of service to provide
Political interference: politicians may take the short term view rather than long term
view
Lack of incentives: there is no profit motive working in the public sector=…

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Market failures
Imperfect Market Knowledge

Symmetric information: perfect & equal market info= efficient allocation of resources
Asymmetric information: imperfect & unequal knowledge= inefficient allocation of
resources

Labour immobility

Frictional unemployment: while people search for jobs to fill them
Structural unemployment: mismatch of skills and location
Geographical: obstacles which prevent labour…

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Buffer stock schemes

Reduce price fluctuations of a commodity
ADVANTAGES
Reduce price fluctuations
Stabilises incomes
Greater certainty in marker= more investment
Ensure provision of commodities at all times

DISADVANTAGES

In years of good harvests= expensive to stock
Perishable goods= harder to store
Bad harvest= low stock= price would drastically increase…

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Taxes levied on expenditure of goods
Government imposes tax on goods with big external costs

Advantages

Both producers & consumers pay= internal external costs whilst maintaining
consumer choice
Pollution decreases as output decreases because of high prices
Tax raised= clean up environment

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