Studied by 1 person
main economic groups
consumers producers government
consumers aim
to maximise satisfaction
producers aim
to maximise profit
government aim
to maximise welfare
factors of production
land labour capital and enterprise
land
land used and natural resources on and below land
labour
human input into production process
capital
goods used to produce other goods and services
enterprise
having ideas and taking risks to organise the other factors of production
needs
what a consumer must have to survive
wants
what a consumer would like to have but is not essential for survival
opportunity cost
the next best alternative forgone when making a choice
economic sustainability
looks at impact of a decision on economic factors
social sustainability
looks at whether the decision will improve quality of life and wellbeing
environmental sustainability
looks at whether the decision is good for the environment and its impact on resources
the basic economic problem
scarce resources and infinite wants
primary sector
first stage of production when raw materials are extracted
secondary sector
when raw materials are manufactured into the final good
tertiary sector (service sector)
the provision of goods and services to businesses and the general public
market
where buyers and sellers meet to exchange goods and services
factor market
where the factors of production are bought and sold
product market
where the final goods and services are offered to consumers and producers
specialisation
the process by which individual firms regions and economies produce what they are best at producing
division of labour
form of specialisation whereby workers concentrate on doing a few small tasks so they become more efficient
exchange
the giving up of something in return for something you wish to have but do not possess
derived demand
when there is demand for a good or service so producers demand the factors of production to produce it
demand
the willingness and ability to purchase a good or service at the given price in a given time period
law of demand
consumers buy more when price decreases and less when price increases
contraction in demand
decrease in demand due to an increase in price
extension in demand
increase in demand due to a decrease in price
shift in demand
demand increases or decreases at any given price level
price elasticity of demand
the responsiveness of a change in quantity demanded of a good or service to a change in price
PED =
% change in quantity demanded / % change in price
causes of a shift in demand
population advertising complements and substitutes income fashion and trends interest rates confidence
supply
the quantity a producer is willing and able to supply at a given price level in a given time period
the law of supply
the higher the price the higher the quantity supplied as more producers enter the market as it becomes more profitable to do so
shift in supply
when supply increases or decreases at any given price level
contraction in supply
decrease in supply due to a decrease in price
extension in supply
increase in supply due to an increase in price
price elasticity of supply
the responsiveness of quantity supplied of a good of service to a change in price
PES =
% change in quantity supplied / % change in price
causes of a shift in supply
productivity indirect taxes number of firms in the market technology subsidies weather costs of production
what is market equilibrium
where the quantity demanded is equal to quantity supplied and the market clears
price fulfils 3 functions
signalling incentives and rationing
price
indicates worth but is not always accurate
market mechanism
always adjusts so the new price clears the market and reaches new equilibrium
competitive market situation has
large number of firms in the market and no barriers to entry and perfect knowledge of competitors
why do firms compete
to enter a market to survive in a market and to make profit
monopoly
sole producer or seller of a good or service
legal monopoly
when a firm owns over 25% of the market
oligopoly
when a small number 3-8 firms control the large majority of the market share and together have monopoly power
oligopolies compete through
non price competition or they collude
production
the total output of goods and services produced by a firm or industry in a given time period
productivity
measures the degree of efficiency in the use of the factors of production in the production process
productivity measures
total output / total input or output per worker / time period
fixed cost
does not change with output
variable cost
changes with output
total cost
variable costs + fixed costs
total revenue
all revenue generated by sales
economies of scale
the cost advantages a firm gains by increasing its scale of production leading to a long term fall in average costs
diseconomies of scale
when average costs rise due to a firm increasing its scale of production
wage
amount you are paid hourly or daily
salary
yearly wage
net pay
gross pay - deductions
income tax
tax levied from a persons wages
national insurance
contribution paid by workers towards the cost of state benefits
pension
a fixed amount paid at regular intervals to a person or their surviving dependants
bank deposits
current accounts and savings accounts that you have
cheques debit cards and credit cards
not money but are ways of transferring money between buyers and sellers
financial sector
consists of financial institutions and their products and involves the flow of capital
3 key financial institutions
banks building societies and insurance companies
central bank
sets base rate for interest which impacts other financial institutions and is the bank for commercial banks and the government
commercial banks
ensure money is used efficiently throughout the economy by using money people save to help businesses invest
building society
mutual financial institution owned by its members with the aim to receive money from members and lend members money to purchase property
insurance company
guarantees compensation for specified loss damage illness or death in return for an agreed premium
money
anything generally accepted as a means of payment and is a medium of exchange that sets value of goods and services acceptable to all parties
interest rates
% rate paid when money is borrowed or saved
annual equivalent rate
amount of interest a savings account will earn in a year
gross annual
annual income from a savings account before tax is deducted
compound interest
when a saving account earns by receiving interest on the interest it has already earned on the account
investment
the purchase of capital goods to produce future goods and services
credit provision
banks or building societies allow you to buy now pay later
liquidity provision
how easy it is to turn an asset into cash provided by banks
risk management
financial sector allows pooling and spreading of risk to encourage more savings and investment
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