Economics paper 1

Rewards for factors of production

Land- rent

Labour - wages

Capital - interest

Enterprise - Profit

Define market

A place where buyers and sellers can interact in order to establish a price of a good or service

Difference between factor and product markets

Factor - Factors of production bought and sold to create g/s

Product - Finished G/S bought and sold to the final consumer - determines prices in the economy

Define specialisation and division of labour

Specialisation - individuals/ firms focus on producing 1 good/service

Division of labour - individuals produce 1 g/s and work together to complete a task

Costs and benefits to division of labour

Workers

• + more valued skill set - well paid

• - boredom

Firms

• + increased productivity

• - less chance to adapt if workers leave

Define demand

The total quantity of a good / service a consumer is willing and able to buy

Factors which affect demand

• price

• consumer income

• trends

• price of subs/ compliments

• population

Factors which affect supply

• price of production

• tech

• government policies

• weather

• price of related goods

Factors which affect PED

• quantities subsitiutes

• needs / wants

• proportion of income

• addictiveness

Factors which affect PES

• availability of resources

• spare capacity

• time period

Average costs / revenues calculations

Total costs / revenues divided by quantity

Benefits of increased productivity

• lower average costs

• increased international competetiveness

• increased wages

• faster Economic Growth

Meaning of economies of scale

The cost advantages a firm experiences as it increases production

The costs of growth for a business

Diseconomies of scale

• lack of leadership

• misallocation

• lack of communication

Types of economies of scale

• Financial -easier to take out loans, less interest on them

• Technical - invest in machinery so more productive

• Purchasing bulk buying

• Risk bearing - diverifying products - less risk of failure

• Managerial - hire higher skilled workers

Causes and concequences of monopolistic power

• eos

• copyright

• high sunk costs

• reduced competition

• potential for exploitation of workers

• increased market control

Gross vs net pay

Gross - total before deductions

Net - after deductions

deductions include - income tax, pension, insurance and student loan contributions

Costs of misallocated resources

• lower productivity

• reduced output

• reduced social welfare

Methods of gov intervention of misallocation

• price control (cap or minimum)

• subsidies

• tax

• information

Define externalities

Side effects of economic activity on 3rd parties

Costs and benefits - externalities

Social cost - cost to society

Ben- ben to society

Private cost - cost to seller

Private ben - ben to buyer

Externalities are difference between pr and so