Definitions
Define supply
Willingness to sell a product and ability to sell a product
Supply at a given price / in a given time period
Definition and example
Is a good that can be consumed in as much quantity as needed without reducing its availability to others, it has no opportunity cost
Eg. water, air & solar
What are two causes that shift the supply curve?
Changes in the costs of factors of production (resources)
Changes in the price of other goods and services that the same supplier produces
Technology
Government involvement: subsidies and taxes
Global factors
Business expectations: if a producer thinks they can more profit on their products a few weeks from now, they’ll hold back supply now and then supply more later on
if the PED is less than 1 it is......
Inelastic
What are three features of money?
Divisible
Portable
Accessible
Durable
Scarce
Define demerit goods
A product which is more harmful to consumers than they realise / the government considers is more harmful
What are the four factor rewards?
Wages
Rent
Interest
Profit
What is a cause of market failure?
Profit maximisation
the consumption of demeirt goods
When social costs exceed social benefits (especially where negative externalities (external costs) are high).
Overprovision of demerit goods like alcohol and tobacco: the external costs arising from demerit goods are not reflected in the market and so they are overproduced.
Under-provision of merit goods such as schools, hospitals and public transport, since the external benefits of these goods are not reflected in the market, they are underproduced.
Lack of public goods such as roads, bus terminals and street lights: since their consumption cannot be measures and charged a price for, they are not produced by the private sector.
Immobility of resources: when resources cannot move between their optimal uses and thus are not used to the maximum. For example, when workers (labour) don’t have occupational or geographic mobility.
Information failure: when information between consumers, producers and the government are not efficiently and correctly communicated. Example: a cosmetics firm advertises its products as healthy when it is in fact not. The consumers who believe the firm and use its products might suffer skin damage.
Abuse of monopoly powers: monopolistic businesses may use their powers to charge consumers a high price and only produce products they wish to, since they know consumers have no choice but to buy from them.
A point on the graph companies cannot produce at is on a _________ graph and is called _________
A point on the graph companies cannot produce at is on a PPC graph and is called UNATTAINABLE
Consumer spending differs with these three things
Consumer spending varies with AGE - 18 year old take pocket money, 30 year olds work
Spending patterns and gender - women will buy makeup and cosmetics
Spending patterns and tastes - sportive people will buy more sports gear
What is an external cost?
a cost not included in the market price of the goods and services being produced, i.e. a cost not borne by those who create it
What does the PPC measure?
Resources are being used efficiently if they are producing their maximum output
What is price mechanism?
Price is set at equilibrium by the market forces (supply and demand)
What is a graph showing what price people will buy a specific product at and how much can the company offer the product for
Supply and Demand Curve
What are two functions a central bank performs?
The central bank acts as a banker for the government it accepts tax payments to the government / provides facilities for the government to make payments
Manages the national debt / lends to the government
It operates the government’s monetary policy e.g. changing interest rates / to influence i(1)
nflation
It holds reserves of foreign currency to influence the foreign exchange rate
It manages the government’s debt
It issues bank notes influencing the money supply
It may regulate commercial banks / banking system to ensure they act responsibly
What is market failure?
When the price mechanism fails to allocate resources effectively
Analyse AND draw using a demand and supply diagram, how an increase in income will affect the market for a luxury brand of perfume.
Up to 4 marks for the diagram: D and S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right (1). Equilibriums – shown by lines or equilibrium points (1). Up to 2 marks for written analysis which might include: Luxury perfume will be more affordable / greater purchasing power / luxury perfume will take a smaller proportion of income / more will be demanded at the same price (1) price will rise / quantity traded will increase (1).
What are non-price factors which could increase the demand for a product or service?
• Increase in consumer income
• There is limited supply
• Consumer confidence in the product / brand image
• Changes in population size and structure
• Changes in consumers’ fashion and tastes
• Degree and type of product marketing / advertising
• Availability of substitute products
• Seasonal variations
• Convenience / accessibility of the place
What are two things that affects price elasticity of demand?
If the product is necessary
The number of close substitutes a product has
The amount of time consumers have to search for substitutes
The cost of switching to a different suppliers
The proportion of of a consumer's income spent on the product
Two reasons why someone may prefer to work in the tertiary sector rather than in the primary sector.
Better working conditions / non-wage factors e.g. working inside / not having to work in wet weather
Less stress
fringe benefits
Shorter working hours
Type of work / less physically demanding / not manual work (1) less risk to health / less tiring / less dangerous / fewer accidents / may lack physical strength
Better paid enabling more goods and services to be purchased / higher standard of living / as may require more qualifications / skills/training
Two ways a government could increase the consumption of merit goods.
Provide information/education about the benefits of merit goods / consumers may be unaware of full benefits
Provide merit goods free / direct provision e.g. education and healthcare / nationalise industries producing merit goods
Subsidise the production of merit goods to lower prices
Subsidise the consumption of merit goods by e.g. providing vouchers
Set a maximum price / price ceiling to make merit goods more affordable / to lower price
Pass laws / introduce regulation to make consumption of merit goods compulsory
Remove / cut indirect taxes on merit goods to make them more affordable / to lower price
What are two disadvantages of having a mixed economic system?
Higher taxes from government on private sector demotivate workers and business
Public sector may make private sector lose and shut down
Presence of government increases tax on profit which might make firms increases their prices
Wide variety of goods/services encouraged by high competitions
Profit motivate which encourages development in efficient products and processes
Quick response to change in consumers tastes and demand
No taxes on incomes and wealth or goods and services
Better standard of living which means they have the ability to consume
Better quality
these are advantages of what
Free market system
What are three factors that make people choose an occupation
Desire for Money
Working satisfies many other needs and wants
Non-wage factors can attract people to different jobs, like hours of work, quality of working environment, fringe benefits, opportunity for promotion and training.
All wages and non-wages factors affecting choice of job are called net advantages.