Economics

unlimited wants and limited resources

What to produce? How to produce? For whom to produce?

the cost of the next best use of time and money when choosing to do one thing or another

the desire to own something and the ability to pay for it

as price increases, quantity demanded decreases and vice versa. This is an inverse relationship.

a change in an area other than price

Income, Demographic changes, Fashion/trends, Advertising, Substitutes, Complements

The quantity of something that producers have available for sale

producers offer more of a good as its price increases and less as its price falls. This is a proportionate relationship.

production cost, technology, indirect taxes, subsidies, natural factors

the price at which the quantity demanded by buyers equals the quantity supplied by sellers

If demand increases, equilibrium price will increase too.

If supply increases, prices will fall

-To remove excess demand, producers could raise prices or increase production to meet demand -If there is excess supply, producers could lower their prices or store excess products to sell at a later date (however may not be practical in some cases)

a measure of how much the quantity demanded of a good responds to a change in the price of that good

% change in quantity demanded / % change in price

Demand is not very sensitive to price - the % change in demand will be smaller than the % change in price. PED <1 (a fraction or decimal) is inelastic

Demand is very sensitive to price - the % change in demand will be bigger than the % change in price. PED >1 is elastic

If the % change in price is negative it is because the price fell or the demand fell.

0

perfectly elastic

Vertical

Horizontal

When the PED is -1

-Availability of substitutes -Degree of necessity (necessary items are inelastic because people will need them even if the price is high) -Proportion of income spent on a product -Time

products with a large number of available substitutes are generally elastic, because if the price of the original product were to rise, consumers would just switch to the available substitutes which are presumably cheaper.

products that are considered necessities generally have inelastic PED , this is because even if the price were to rise, consumers would still need to buy the product because by definition, they are necessities.

If consumers are going to buy something expensive like a TV, they may be willing to see if the price drops, making PED elastic. However, if the product is cheap, like a pencil, they are less likely to do this thus PED is usually inelastic

PED is usually inelastic in the short term as it takes time for consumers to find substitutes.

An example of this is if petrol continued to increase, consumers may still demand it in the short term, however over time, consumers may switch to electric cars or public transport.

The responsiveness of demand to a change in income

% change in quantity demanded / % change in income

Basic goods that people will have to buy even if their income changes. This makes them inelastic. YED that is between -1 and +1 is inelastic. Eg. water

Discretionary expenditure, usually income elastic as people will typically buy them when they can afford them. Eg. air travel

Voluntary spending on non-essential goods and services when consumers can afford them.

Goods can be normal or inferior. Normal goods are when an increase in income results in an increase in quantity demanded (positive income elasticity).

When an increase in income results in a decrease in quantity demanded (negative income elasticity). Eg. Shein products, dollar store

Could help predict effect of a price change on total revenue. Eg. if a product's demand is elastic, a price reduction could result in an increase in revenue.

When incomes fall quantity demanded for inferior goods rise. Incomes usually fall in recessions.

They can raise more revenue by putting VAT and excise duty on products like alcohol and cigarettes. Usually put on products with inelastic demand as consumers would avoid heavily taxed products if demand for them was elastic

tax on goods such as alcohol, petrol and tobacco

The purpose of a subsidy is to make goods cheaper and if demand is elastic it will only reduce the price slightly when supply is increased, thus govt's would target demand inelastic businesses like farmers.

The responsiveness of supply to a change in price

% change in quantity supplied / % change in price

When producers find it hard to change their production in a given time period (PES <1)

Producers can increase output without a rise in cost or time delay (PES >1)

The act of selling a company or activity controlled by the government to private investors

The situation where an industry is controlled by only one company or by the government and other companies do not compete with it.

Public corporations previously part of the private sector which were taken into state ownership.

A situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many smaller firms.

• To generate income

• To reduce inefficiency in the public sector

• To reduce political interference

Occur when production or consumption impose external costs on third parties for which no compensation is paid.

If a company discovers something, other companies can use this if it's not patented (e.g. COVID vaccines)

Masks can prevent/decrease the spread of some diseases which benefits wider society.

when the quantity demanded changes at every price. This is caused by any factor other than price. Eg. income change

When the good's price changes

costs of an economic activity to individuals and firms

External Costs + Private Costs. (costs of economic activity to society and the individual/firm, negative externality)

Passing laws to prevent companies/individual taking certain actions, usually about the environment. However, laws for regulation may take many years to be passed and many externalities may be created within that time.

An amount of money to be paid as a result of an action like speeding to prevent a negative externality like a car crash

An amount of taxes that businesses have to pay. Usually targeted to products that cause negative externalities like cigarettes. They can be placed on other things too, but are usually higher on products like cigarettes. Taxation causes the cost of a product to be higher and thus lowers demand. However, sometimes companies relocated to other countries with lower taxes.

Money or benefits given to a business by the government so they can improve society by reducing a negative externality or creating more positive externalities.. For example, grants for a company to build a recycling plant, therefore reducing the negative externality of pollution. There is also tax allowance, where a business can pay less taxes to produce more goods. However the negative of subsidies is that the government needs to pay and thus decide what will lower the most negative externalities/create more positive externalities.

Increase in cost of car usage (like tolls in certain zones in peak hours), to decrease negative externalities like pollution or congestion. Not very effective however, since the price elasticity of demand of cars is inelastic.

private benefits + external benefits (positive externality)

Land, Labour, Capital and Enterprise

the amount of output you generate given the amount of input. The more that is produced, the more productive the inputs are being.

Quantity: -Discover new resources -New processes to make it more efficient Quality -Environmental protection -Fertilizer

Quantity: -Number of hours worked -Immigration -Lower working age Quality: -Education -Training -Access to higher education

Quantity: -New tech -New processes -Mechanisation Quality: -Research & development

Quantity: -Business education Quality: Training

A bowl shape. Average costs were initially falling because productivity was increasing, but then when productivity declined, AC increased again.

total cost/quantity produced

An increase in productivity means more can be produced with less resources, thus lowering costs and hopefully increasing profits.

Production methods that make more use of labour relative to machinery

Production methods that make more use of machinery relative to labour

Labour is harder to manage and cannot work as many hours as machinery. It can also be expensive. However, machinery is also expensive and smaller firms may not want to take this risk.

A group of businesses that provide similar goods/services.

A business is an individual firm, but is is part of a group of businesses within its sector.

the part of the economy that draws raw materials from the natural environment

the part of the economy that transforms raw materials into manufactured goods

Sector involved in the delivery of services

A subset of the tertiary sector and involves service jobs concerned with research and development, management and administration, and processing and disseminating information.

primary --> secondary --> tertiary Each sector is interdependent.

Lower developed countries. Eg. Pakistan, Tanzania

Developing countries. Eg China. India

Developed countries eg. Germany, UK

Change over time in the importance of each sector in terms of a nation's earnings (GDP) and employment.

-Increase in GDP -Increase in employment in a certain sector and vice versa -Increase or decline in manufacturing

Poverty, a lot of people cannot keep up with changes. Exploitation, may not have as many regulations for the emerging sector

an industry is made up of a group of businesses, thus its size is measured by how many businesses are in the sector.

vast majority of goods and services are provided by private businesses Eg. Hong Kong

An economy where goods and services are provided by both private and public sectors Eg. UK

An economic system in which the government makes all economic decisions, how to produce, what to produce and how to distribute. Eg. North Korea

the part of an economy that is controlled by the government.

To provide public services that cannot be sufficiently provided by the private sector due to it causing a 'free-rider problem'

When people enjoy the benefits of something while allowing others to pay.

departments controlled by teams/boards led by govt. minister. e.g. NHS, department of defence

Organizations wholly owned by the government but run as commercial establishments, e.g. the BBC

Services delivered by local councils e.g. library, sports hall

Run by a trust/board led by an expert selected by the govt.. e.g. bank of England

Improving the quality of services, minimising costs, allow for social costs and benefits, profit (in some cases)