Resources are scare(finite) while wants/demand is infinite
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Opportunity cost
The cost of any choice in terms of the next best alternative foregone (PPF's)
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Who founded 'specialisation'? and what is it?
Adam Smith - splitting the production of a good into a number of different tasks, and allocating each task to a different worker, more could be produced.
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Pros and Cons of specialisation?
Pros - increased output + corresponding lower unit costs Cons - boredom + higher wage costs + labour immobility
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3 types of markets?
Free-market(Smith and Hayek), Mixed and Command(Marx)
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Rational decision making?
Consumers aim to maximise utility // Firms aim to maximise profits
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Causes of demand shifts?
changes in real incomes, changes in tastes, advertising and branding, changes in the prices of substitutes/ complements
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Price elasticities of demand
PED, YED and XED
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Income Elasticity of demand(YED)
Negative = inferior good, 0-1 = normal good, +1 = luxury good
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Cross-Price Elasticity of demand(XED)
Negative = complement, Positive = substitute
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Causes of supply shifts?
changes in the costs of production, new technology, indirect taxes, subsidies + changes in the no. of firms in an industry
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Price Mechanisms?
Rationing; demand>supply the price rises, Incentives; price increase should increase production(profit motive), Signalling; rising prices shows supply should shift to meet demand
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Consumer/Producer surplus?
Difference between how much they are able and willing to pay/sell at compared to what they actually pay/sell at
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Types of Market Failure? (Micro)
Externalities, Public goods(under-provision) + information gaps
When correction of a market failure = greater misallocation of resources (unintended consequences e.g. smuggling, information gaps, distorted price signals + regulatory capture)
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Other cards in this set
Card 2
Front
Opportunity cost
Back
The cost of any choice in terms of the next best alternative foregone (PPF's)
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