Econ AC1 and AC2

"what is the basic economic problem"

"That there is a scarcity of resources to satisfy all human wants and needs. There are finite resources and unlimited wants. This is applicable to consumers, producers, workers, and governments in how they manage these resources."

"What are resources"

"The inputs required for the production of goods and services."

"What are economic goods"

"Goods which are scarce in supply and can only be produced with an economic cost or consumed with a price. It is goods with opportunity costs."

"What are free goods"

"Items that are abundant in supply and do not require the use of scarce resources to produce, such as air and sunlight."

"What are the four factors of production (CELL)"

"Land: Raw materials that come from the land. Labour: The human input in the production process. Capital: Goods used in the supply of other products, e.g., tech. Entrepreneurship: Organise the factors and take risks."

"What are the rewards for each one"

"Land: Rent Labour: Income/Salary Capital: Interest Entrepreneurship: Profit Government: Tax revenue"

"What does its supply depend upon"

"Land: Supply is fixed (amount of land). Labour: Number of workers available. Capital: The demand for goods and services. Entrepreneurship: Entrepreneurial skills, education, corporate taxes."

"What does its quality depend on"

"Land: Soil, fertility, and weather. Labour: Skills, education, and qualifications. Capital: How many good quality products can be produced. Entrepreneurship: How well it is able to satisfy and expand demand in the economy in cost-effective ways."

"How occupationally and geographically mobile is it"

"Land: Geographically immobile, occupationally mobile. Labour: Geo-mobility depends on transport ability; occupational mobility depends on qualifications. Capital: Depends on what it is (building vs. pen). Enterprise: Highly mobile both ways."

"What is the definition of opportunity cost?"

"The benefit lost from the next best alternative sacrificed."

"What is the definition [of PPC]"

"The maximum combination of two goods that can be produced by an economy with all the available resources."

"What is a point inside the curve"

"Inefficient."

"What is a point outside the curve"

"Impossible."

"What is the law of increasing opportunity cost"

"When all resources are being used, an increase in the production of one good will lead to a greater foregone production of the other good."

"What type of curve is it if its straight and if its concave"

"Straight line: Constant, so law does not apply. Concave curve: Concave, so law applies."

"What are the rules to drawing a perfect PPC graph"

"Curve must touch both axes. Correctly labelled. Point is placed correctly. Arrow to indicate which way the point changes in terms of resource allocation."

"What are things that cause a right/outward shift"

"increased quantity or quality of goods better technology trade"

"What are things that cause a left/inward shift"

"worse quantity or quality of goods worse technology less/ no trade"

"What is a market"

"Buyers and sellers meet to exchange goods and services at an agreed price."

"What are the 5 markets? (Mnemonic: Gurl stop, cant really matter)"

"Goods: Clothes, toys, equipment. Services: Massage, haircut, colour analysis. Commodities: Raw gold, raw iron, cotton, raw coal. Resources: Labour, enterprise, land, capital. Money: Stocks, gold bars, credit."

"What is demand"

"The amount of a good or service that an individual or individuals are willing to buy at any given price."

"What is effective demand"

"The willingness and ability for customers to pay."

"What is individual and market demand?"

"ID: Is one person or group's demand. MD: Is the demand of all potential customers."

"How do you obtain MD"

"Adding the demand of all the ID."

"What is a Weblin good?"

"A good of prestige"

"What is the law of demand"

"Demand varies inversely with its price, meaning the curve slopes down."

"What change in the graph will these situations cause: Change in price - Increase in demand due to changes in income, complimentary goods, expectations, and customer taste"

"Change in price: Movement along the curve. Increase in demand due to changes in income, complimentary goods, expectations, and customer taste: Movement of the curve outwards."

"What is a decrease in demand"

"Contraction."

"What is a increase in demand"

"Extension."

"What are the conditions of demand? (Mnemonic: TIMECOPS) (These cause the line to move inwards/outwards)"

"Taste Income Marketing Economy Complementary goods Other factors Population Substitute goods"

"Definition of supply"

"The willingness and ability of firms to provide goods and services at given price levels."

"What is the law of supply"

"f price goes up, supply goes up."

"What shape is a supply curve"

"Upwards sloping."

"What can cause a shift in the supply curve (conditions)? (Mnemonic: NEWC C)"

"New technology: Increase in production → more supply. Expectation of future events: Some businesses stockpile → decrease supply. Weather: In agricultural markets. Cost of production: Decrease in supply. Change in tax/subsidies: Tax goes up then less supplied."

"When is the market in equilibrium"

"The intersection of supply and demand / when demand = supply."

"Why is equilibrium price known as market clearing price"

"Supply = demand, so no products left on the market."

"What is market disequilibrium"

"Any price where QD is not equal to QS so it is unstable."

"What is surplus"

"When supply is greater than demand."

"What is shortage"

"When demand is greater than supply."

"Explain how buyers and sellers incentive brings the price back to the equilibrium always."

"When there is a surplus, sellers don’t have as many buyers as they would like, so they have an incentive to lower the price to outcompete other sellers and sell more. The price will fall until market equilibrium is reached. During shortage, the amount supplied is less so the buyers have the incentive to offer higher prices to secure the limited supply. The sellers then increase supply for maximum profit from such a demanded product. This happens until market equilibrium is reached."

"What are the 3 fundamental questions"

"What to produce. How to produce. For whom to produce."

"What provides the answers to the 3 fundamental questions"

"Price mechanism."

"What is price mechanism"

"The way demand and supply work together to decide the prices of goods and services in a market."

"What is the formula for PED"

"What is PED"

"Measures how sensitive demand is to a change in price."

"What does this symbol mean"

"change"

"For each value what would PED be < 1 > 1 1 or -1 0 or infinity"

"< 1: Inelastic. > 1: Elastic. 1 or -1: Unitary (change in QD = change in price). 0 or infinit: Stays always the same (no change)."

"What would each look like on a graph (demand) < 1 > 1 0 infinity 1 or -1"

"< 1: A steep line. > 1: A flatter line. 0: A vertical line. infinity: A horizontal line. 1 or -1: A perfect diagonal."

"What inelastic and elastic mean?"

"Elastic curve: Customers respond strongly. Inelastic curve: Customers not as responsive."

"How do you calculate change in revenue"

"Revenue = QD x price New revenue = new QD x new price change in revenue = new revenue - revenue"

"How do you increase revenue when elastic"

"Decrease price."

"How do you increase revenue when inelastic"

"Increase price."

"What are the factors affecting PED (AT NL)"

"Availability of substitutes: Many substitutes = elastic demand. Time period: Product is more likely to be elastic in the long run. Necessity: Reaction inelastic. Luxury good: Elastic reaction."

"Price Elasticity of Supply (PES)"

"Measures how sensitive supply is to a change in price."

"What affects PES (BASSET)"

"Time period: How quickly can producers make more of the product in the short run?.

Availability of inputs / raw materials: How difficult is it to produce / source more raw materials to make the product?.

Ease of factor substitution / factor mobility: How easily can resources be allocated (e.g., moved)?.

Spare production capacity: If firms are running at full capacity, they cannot increase their supply in the short run.

Stock levels: Producers that can hold large inventories can respond more quickly to price changes.

Barriers to entry: How difficult is it for new firms to enter the industry?."

"What is the only difference between PED and PES graphs"

"PES slopes upwards"

"What is a market economy"

"Producers and firms decide everything with little to no government intervention."

"Do market economies exist now"

"Singapore comes close but no."

"What is a command economy"

"Government controls everything (e.g., North Korea)."

"What is a mixed economy"

"Blend of market and command."

"What are the advantages of market economies"

"Wide variety of goods and services. Competition encourages innovation. Efficient use of resources to maximise profits."

"What are the disadvantages"

"Consumption of harmful goods might be promoted. Social costs ignored. Firms only produce for paying customers, creating income inequality. Firms may cut corners regarding safety of workers/consumers. Important goods might not be provided if not profitable."

"What is market failure"

"Any situation where allocation of resources by a free market is not efficient."

"Benefits and costs don’t affect privately. This means that…"

"Social costs = private costs + external costs Social benefits = private benefits + external benefits"

"What is Income inequality"

"The unequal distribution of income across individuals or households in an economy, resulting in some earning much more than others."

"What is Merit goods"

"Goods or services deemed socially desirable and tend to be under-consumed if left to the free market (e.g., healthcare)."

"What is De-merit goods"

"Goods or services considered harmful to individuals or society and are often over-consumed in a free market (e.g., cigarettes)."

"What is Public goods"

"Goods that are non-excludable and non-rivalrous, such as street lighting or national defense."

"What is External costs (negative externalities)"

"Costs imposed on a third-party not involved in the transaction, such as pollution from a factory."

"What is Monopolies"

"Markets in which a single firm dominates supply, giving it significant market power to set prices and restrict output."

"Summary of Mnemonics"

"TIMECOPS: Conditions of Demand. NEWC C: Conditions of Supply. AT NL: (Mentioned in notes). BASSET: (Mentioned in notes). CELL: Factors of Production. Gurl stop, cant really matter: The 5 Markets."