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Econ Micro (AQA)
Economics Autumn Y12
| Question | Answer |
|---|---|
| What is economics? | The allocation of scarce resources |
| What is The Basic/Fundamental Economic Problem? | Allocating scarce resources for unlimited wants Unlimited wants Scarce resources Resource use Choices |
| What are the main factors of production (CELL)? | Land - Natural, physical resources e.g. farm space, coal, fish Labour Capital (not financial capital which = money) - Machines e.g. cement mixer Enterprise - Profit-seeking businesses - Entrepreneurship (can separate environmental resources) |
| What is micro economics? | Individuals and markets e.g. housing/labour/technology market |
| What is macro economics? | National + International economies e.g. unemployment, inflation, growth, international trade - balance of payments |
| Why is economics a social science? | Decisions of public involved (social). Theories, evidence, economic models (science). |
| What is opportunity cost? | Spending on one thing means giving up on another |
| For economics, what type of language is best? | Conditional language - if, may |
| What is a trust? | Monopoly - one firm controls the market |
| Google antitrust lawsuit recently | Marketing share 88%. Paid apple to have engine. Found guilty - huge influences on competition |
| What does pi stand for? | Profit |
| Market based system | Based on supply/demand. |
| What are the goals of businesses | Profit, increasing market share (reduces profit short term but huge long term), sales/units, social responsibility objectives (e.g. environment, employee welfare, ex-prisoners, fair trade, animal welfare) |
| Adam Smith | The father of free market economics |
| The assumption that companies are motivated by profit is from | Adam Smith |
| Do govts care about large market shares? | Generally no - only when malicious methods used to keep it |
| Planned/command economy | Govt decides what to produce, how to produce, for whom to produce for. Rather than supply and demand |
| More precise definition of capital | Man-made aids to production |
| What is opportunity cost? | The cost of the next best alternative foregone when a choice is made (if higher than your choice, bad decision, so allocate more resources to opportunity cost) |
| What do Production Possibility Frontiers/Curves (PPCs/PPFs) show? | Maximum possible production of 2 goods/services with given factors of production The various combinations of 2 goods/services that can be produced with given factors of production |
| What does a microeconomics PPF have? | Specific goods |
| e.g. Concave PPF with laptops and tablets | When increasing number of tablets by 10, opportunity cost is 15 laptops. Because of curve shape, increasing 10 more in tablets means opportunity cost is 30 laptops |
| Concave PPFs indicate what law? | Quarter circle shape. Indicates the law of increasing opportunity cost. This is because at the far end of the curve, when lots of tablets are being made, the factors of production are more suited to producing laptops (e.g. running out of ores) |
| What does a linear PPF show | Downwards straight slope. Illustrates constant opportunity cost |
| What are the 3 types of efficiency in regard to PPFs? | Productive efficiency. Allocative efficiency. Pareto efficiency |
| Productive efficiency | Any point on the curve is productively efficient: using all factors of production to maximum, maximising production Any point inside the curve is productively inefficient - not using all factors Any point outside curve unattainable yet |
| On a macro level, what might productive inefficiency indicate? | Unemployment |
| Allocative efficiency | Whether what is being produced is satisfying consumer demand. Can't tell from a PPF. (e.g. does society only like laptops) |
| Pareto efficiency | The idea that nobody can be made better off without making somebody else worse off. Any point on the PPFs curve is pareto efficient (e.g. making more laptops rather than tablets makes tablet enjoyers sad, but laptop enjoyers happy) |
| How can increasing production of a thing be shown on PPF? | For productive + pareto inefficient points, use factors of production better (e.g. use up idle capital) If already on curve, reallocate use of factors of production to specialise more Shift the PPF curve |
| Shifting the PPF curve | Might not have to give up other products. Done by increasing quantity and/or quality of factors of production (Q^2CELL) Either increase both Or increase just one (e.g. improving tablet machines only). Specialised - uneven/not parallel shift |
| The 'ideal point' on a PPF | On the curve, there is no ideal point. The PPFs are useful to demonstrate economic growth and opportunity cost |
| What are capital goods | Used to make other things. Investing in future of economy e.g. China high speed rail |
| How to expand PPF | Expand resources or improve productivity of current resources |
| Alternate name for law of increasing opportunity cost | Law of diminishing returns |
| What is comparative advantage in production? | Fewer resources required to produce a G/S |
| On a graph for demand, what does Q mean? | Quantity |
| On a graph for demand, what does P mean? | Prices |
| On a graph for demand, what does the line D mean? | Demand |
| What is the relationship between price and quantity | They have an inverse relationship |
| Why does price and quantity have an inverse relationship? | Income effect - at low prices consumers can afford more Substitution effect - other things are relatively cheaper or more expensive Diminishing utility - more consumption = less additional enjoyment than previous unit |
| What is speculative demand? | Expectation of price increases for reselling (stocks, houses). Can lead to speculative bubble if the resell demand isn't there. Demand curves keep shifting right in the hope of returns. It is irrational to invest because others are. |
| What happens if anything other than price changes for a demand curve? | The whole curve shifts - demand at each and every price has changed. E.g. if demand lowers due to a recession (if price of some goods goes up, we buy less of others), the curve will shift left. |
| Why quantity demanded may increase | Disposable income, prices of complementary products lowers (two things operating together e.g. petrol/cars), higher prices of substitute products |
| Price change = change in quantity demanded | |
| Other factors affecting demand | Changes in population (and spread within country e.g. London housing), fashion (any change in tastes or preferences e.g. vegan food market growing fastest in UK), the law (legal changes like minimum age for cigarettes), successful advertising, speculative |
| What are complements | aka Joint demand. 2 goods that go together are usually bought together. Price decreasing for printers (supply curve moving right) means more people want ink (demand curve right) |
| Composite demand | Some goods have number of distinct uses (e.g. oil price affects most prices). Increase in demand for oil among drivers (demand curve right for good A) leads to fall in supply for chemical producers (supply curve left for good B) |
| Substitutes/[competitive demand] | 2 substitute goods in competitive demand. When supply of one decreases, demand of the other increases |
| Derived demand (one of the main ones) | Some goods only demanded as component of other good production. Increase in demand for cars -> increase in steel demand since steel said to be in derived demand from cars. e.g. bricks, plane journeys Consumers not buying steel, so not substitutes |
| Normative statement | A normative statement is a subjective statement that cannot be proven/disproven Can be backed up with facts and still normative. Valued judgement. |
| Positive statement | Positive statements are types of objective statements that can be proven/disproven Testable against facts |
| 'What is the fundamental economic problem facing all societies' | What, how, and for whom goods and services should be produced |
| For all questions with graphs, say | 'As shown in the diagram' then fully develop |
| What is Y | Income |
| 'Normal' goods vs inferior | As Y increases, consume more Inferior goods opposite |
| Indirect taxes | Pay as you spend - e.g. VAT, stamp duty, duty (e.g. petrol, cigarettes, sugar, alcohol) |
| Direct taxes | Pay as you earn. e.g. Corporation tax, capital gains tax, income tax, NI, inheritance tax |
| Subsidy | Opposite of tax. Govt grant to producers. |
| Factors affecting supply | Future prices - if going to rise, less willing to sell yet Weather - good/bad harvest Joint supply - produced together - change in supply affects both Competitive supply - alt products for same factors e.g. biofuel (supply up one, supply down other) |
| Good harvest consequences | Supply shifts right - more sold but lower value per |
| Joint supply supply demand curve | As demand for beef increases, supply increases (higher supply, higher cost intersection), so supply of leather increases too, shifting right |
| Market mechanism | Process by which markets allocate scarce resources - process by which D+S determine price and quantity of G+S i.e. interaction between supply and demand in order to allocate scarce resources |
| All other factors held constant, a decrease in market demand for new cars will lead to | Decreased price and no change in quantity |
| Price mechanism | Not the same as market mechanism - come back to this |
| What does excess supply do to the supply demand curve | Reduce price to new equilibrium (the lower meeting point) |
| Price elasticity of demand (PED) | Elasticity is a measure of how the quantity demanded of a good is affected by its price e.g. Price of petrol up 85%, but purchase only down 18%, so inelastic consumers |
| PED formula | PED = % change in Qty demanded/% change in price ALWAYS WRITE THE FORMULA to avoid silly mistakes Will always be negative - MAKE SURE to include, but when referring to in general terms we ignore it More than 1 is elastic |
| High vs low price elasticity demand curves | High elasticity has a flatter gradient - as price decreases by the same amount, quantity shifts more Low elasticity less than 45 degrees |
| Price discrimination | Helps companies to target inelastic consumers e.g. trains cheaper for students means their Q stays high despite high elasticity |
| Percentage change formula | (New - old)/old x100% Always write |
| PED factors | Amount of substitutes, necessity, brand loyalty, time, percentage of income, habit forming, cost of switching suppliers, breadth of definition |
| Consumer inertia | Inelastic |
| Graphs in test | Do in pencil + ruler. About 8cm x 8cm. Label lines and show arrow of shift direction. Refer to diagram in text |
| Effect of supply curve shifting left | Less quantity sold but for a higher price |
| Elasticity graphs | More responsive/sensitive to price change when flatter gradient |
| Price/revenue vs quantity graph for downward sloping demand curve | Demand curve (average revenue curve) diagonally down. Revenue curve parabolic. Elasticity varies depending on where on curve. |
| Elasticity on revenue graph (when demand curve is DOWNWARD sloping) | Elastic until peak (reducing the price gives more benefit in quantity than cost in lower price), then inelastic after peak (not worth decreasing price compared to how many more consumers you get) |
| What actually is a demand curve and a supply curve? | Demand curve - amount of people willing/able to pay at different prices Supply curve - what price producers willing and able to supply at. Essentially a cost curve, as it is based on changing cost of supply: if it costs more to make, they want more pay |
| When does increasing prices increase revenue | Price is average revenue Revenue rises when ped less than 1 and business raises average selling price |
| How do you find the tax size from the shift in supply curve? How do you find the actual amount of tax? How do you find total revenue? | Vertical distance between supply curves (directly down from p2 call p3) (P2 - P3) x Q2 Total revenue P2 x Q2 |
| How to find out who pays for a tax increase | The top section of new revenue (P2 - P1)*Q2 is based on the change in price to the new equilibrium, so is paid by consumer Of the actual tax sold, the rest (the bottom section between P1 and P3) is paid by producer |
| Tax increases for goods with very inelastic demand | Most of the tax is paid by the consumer (and vice versa for elastic). Is this fair? |
| Key words to add to defining PPFs | Potential output Combination |
| 'Resources are allocated efficiently' | Allocative efficiency come on daniel |
| Effect of an economy producing more capital goods | A shift in the PPF - more production possible |
| Do specialist workers produce a surplus? | Yes - a jeweller doesn't need 500 diamond rings |
| Benefits of reducing costs | Profit, or can reduce price of good too to increase market share |
| Specialised workers | Need to hope your specialization is in high demand. Lower supply so higher wages assuming demand is the same. Good at job: you are more valuable to the company - say 'labour is derived demand'. More skilled - higher paying job offers |
| Income elasticity of demand formula | YED = %change in quantity demanded/%change in income |
| Income elasticity of demand | Normal - rise in income leads to almost as high rise (mpc not fully 1) (Normal) luxury - Proportional way more bought when Y rises. YED > 1. NOT inherent expensive - often just expensive version of something else Inferior. -ve YED. Buy less as Y rise |
| Cross price elasticity of demand formula` | XED = % change in quantity demanded of good x/%change in price of good y |
| XED | Measure of how the quantity demanded of one good affects the price of another. Shows if products are complements or subs: negative for complements (price of one going up decreases demand for the other) positive for sub. |
| XED close substitutes graph | Flat positive gradient - small rise in price of X causes high rise in demand of Y |
| XED close complements graph | Flat negative gradient - small fall in price of X causes high rise in demand for Y |
| Price elasticity of supply (most difficult one) equation | PES = %change in quantity supplied/% change in price |
| Graph types for PES | Inelastic has high gradient (when demand spikes, price rises a bunch) Elastic has low gradient (when demand spikes, cost doesn't need to rise as much) |
| PES meaning | How easily a supplier can respond to an increase in demand |
| PES factors | Stocks Factor substitution Spare capacity (recession) - is factory producing at max? Number of firms - if many producers, more elastic TIME - train workers, switch production, boost capital Raw material supply |
| Factor substitution PES | elastic if you can use same factory to make more of the demanded good. Ability to switch factors to producing the highly demanded good. e.g. car factory can make exactly as many cars demanded, so if people suddenly like a new model, they can meet demand |
| Canned vs fresh tomatoes PES | All agriculture almost completely inelastic in supply. However, canned tomatoes have huge stocks already so can meet demand. |
| With elasticity Qs if price falls | Make sure to have it be a negative percentage |
| Perfectly inelastic demand | Vertical line - as price increases demand the exact same |
| House price example data | House prices doubled(ish) between 2013 and 2024 from 170k to 270k 2022 - UK house price to earnings ratio at about 7 from less than 3 in the 80s |
| Why D+S of houses inelastic | Time to build and plan. No close subs and necessity. Mention for extra marks: price mechanism, rations, scarce resources |
| Commodities | Examples of inelastic supply/demand are subject to large price changes |
| What does the free market rely on? | Supplier and consumer to have all info |
| Market failure | Markets in practice failing to meet social goals. It exists where markets fail to efficiently allocate resources. |
| No policy is a panacea | = solution for everything |
| The spectre of govt failure | Makes it worse or causes another one due to spending too much |
| Negative externalities | aka third party spillover effects. When we consume something or firms produce, there are external costs not part of the economic transaction |
| Marginal private benefit of repeated consumption | Repeated consumption of good decreases MPB over time |
| MPB examples | Pleasure (N+W) and harm to society (negative external effects) |
| Marginal social cost curve | Current consumption is P1Q1. Once social costs are taken into account: social optimum is P2Q2. |
| Fat fax | Unhealthy products inelastic supply. Tax burden diagram. Break down into: Mechanics (indirect tax increase in cost of production - shown by left shift) Why its good (QD fall, affects young more, habit break) Why its bad |
| Essay structure | Intro (don't spoil your answer) 1. WTP (whats the problem) 2. Good 3. Bad Conclusion (dont just repeat have to say new stuff) Repeat words of Q at end of EVERY para |
| E.g. WTP para | As we can see in diagram MPB > MSB Free market at quantity Q Social optimum at A - where we want to get to by choosing correct policies Negative C externality Demerit good |
| MSC (tax) and MPB diagrams | Can be combined |
| Why fat tax bad | Low PED so C doesn't fall much, price raise by more than Q falls, burden to consumers, low income affected, suppliers may absorb cost if high competition so Qd same |
| Merit and demerit goods | Whether they have positive or negative externalities Demerit goods - provided by free market which fail to account fo harmful consequences to individuals + society. Mainly due to lack of info |
| e.g. positive externalities | Vaccines, planting trees for products bought, healthy kids food, public transport, exercise |
| Public goods | It is difficult/impossible to prevent someone who doesn't pay for a service from benefitting from it. Amount of consumption doesn't reduce availability to others. |
| Unemployment isn't inherently market failure | Economic inequality is - poverty leads to substandard housing, education, and health |
| How can monopolies cause market failure | Limit competition, innovation, and efficiency so resources not allocated efficiently so market fails to supply optimal amount of a good or service |
| Monopolies effect on supply and demand diagram | Competitive market at intersect. Monopolies raises price to P*. Contested if it reduces Q. |
| Subsidy diagram | Supply shifts right instead. The money handed out is shown by second intersection straight up to next line then to y axis |
| Nudge theory | Subtle environmental clues to mildly influence behaviour. Performed by choice architects |
| What is a price floor | A price below which it is illegal to trade. For it to affect the market it must be set above the free-market price Line straight across called Pmin. Distance between intersections is excess supply (govt does buy this = intervention buying from old EU) |
| How tech changes could change public goods | e.g. road usage now excludable |
| Private goods | Rival (one persons consumption reduces amount for others) and excludable (can be prevented from buying if unable or willing to pay for it) |
| Public goods e.g. | Defence, lighthouses, roads, police (deterrance) |
| Public goods | Non rivalry Non excludable |
| The free rider problem | Non excludable and non rival so no market for it - unprofitable privately. Public goods often financed through some form of enforcement |
| Semi-public (quasi) public goods | Public in nature but DO NOT EXHIBIT FULLY the features of non-excludability and non-rivalry They may become semi non-rival (e.g. at peak times when congestion occurs) Making a good excludable may not be practical |
| Who supplies public goods | Can be privately supplied and vice versa private goods can be govt supplied |
| School and hospitals what type of good | Pure private goods - fully rival and excludable |
| Negative externality in production diagram | Cone facing diagonally upwards from bottom left. From the intersection between MPC (the right of the lines) straight upwards is marginal external cost |
| Why is the social equilibrium where it is on a Negative externality in production diagram | Beyond this, the MSC line diagonally upwards is higher than the MSB diagonally downwards - hurts more than it helps |
| Externalities reflected in market price | Not fully reflected |
| Roads S+D | Supply super inelastic - takes ages to build. Continue the lines to the axis. When free, zero private supply (supply line at origin) and maximum demand. Excess demand is the difference. |
| Petrol taxes | Fund roads so as electric vehicles increase, new source of funding needed |
| Road tolls and example | Electronic versions e.g. Sunpass in Florida - highly successful |
| Cons of monopolies | Higher prices for consumers Less incentives to cut costs/innovate/invest - inertia Allocative+productive inefficency May have monospony power - inclduing worker pay Political power Less consumer choice Poor qual - no incentive to respond to prfrnces |
| Pros of monopolies | Economies of scale - could be passed to consumer More profit for R+D Reward of patent encourage invest Incentivise successful firms Govts can regulate prices to get best of both worlds |
| Pollution permits | Cap can reduce every year. Govt issues permits: factories that can cheaply reduce pollution sell permits to factories where more expensive - same total pollution loss but max profit and min wasted resources |
| Why pollution permits necessary | Market has dispersed info but govt doesnt which they would need for command + control so this is easier |
| What to talk ab difference between theory and practical for carbon permits | Plans rarely work as intended Carbon permits have not reduced CO2 emissions because too cheap so not worth improving Carbon leakage |
| Carbon leakage | Go to countries with worse/no enforcement Hard for govt to measure pollution - cheating Fines often not too bad EU considering import carbon taxes to prevent it |
| Fixes for consumption and production externalities | Tax Subsidy Information - More (tell ab replacements more for production) Nudge Ban/regulation (e.g. smoking ban, catalytic converter forced) Min/max prices |
| Tragedy of the commons | Choosing short term self interest at the expense of long term collective benefit. It allows any individual to benefit while spreading out harm to all |
| Coase theorem | Doesn't matter who property rights assigned to as long as satisfactory agreement can be arrived at via negotiation e.g. if factory owns river fishermen pay factory to pollute less or is fishermen own river factory pays to pollute: both financial incentive |
| The 3Ds requirements for coase theorem | Well defined (specific rights), divisible (can be traded, contracts changed - right to transfer ownership to third party), defendable (monitorable and prosecutable) |
| Cons of coase theorem | Very difficult to enforce in practice for larger areas: impossible for international areas |
| Solutions for negative externality and cons of each | Taxation (expensive and hard to monitor) Regulation (e.g. use techs to reduce externality: low monitoring, but less innovation of new methods, or e.g. just impose lmits but high monitoring) Property rights |
| What type of externalities are single use plastics | Negative production externalities |
| Monopolies | Pure - not generally real. One company. Technical: >25% market share. e.g. Google |
| Oligopoly | Uncompetitive. Handful of firms control market. Most industries. |
| Tesco case study detail | Used to have 34% of market share. 1 in every 7 pounds spent in britain. |
| Monopoly pros | Profits for new innovation e.g. Google Maps |
| Fixed costs | have to be met regardless of how much a firm produces e.g. rent, debt repayment |
| Variable costs | Will increase/decrease depending on level of output |
| Semi-variable costs (not on spec) | Most business costs can cut parts but have standing bills |
| Cost diagrams total | Cost on y axis, output on x. Total variable is diagonal through origin. Total cost is just shifted up a bit. Total fixed costs are straight line horizontally across |
| Definition of short run | At least one factor of production is fixed (in long term all variable) |
| Average cost diagrams short run | AFC is high at low output but then slopes down (1/x shape) AVC is gentle curve down then up again ATC is curve higher up than AVC As such: in short run, as production expands beyond a certain level, average costs rise. |
| Key point with LR average costs | In long run, average costs will fall, so profits (CP) go up (revenue - cost) In long run, as output goes up, average costs go down |
| Cust curve in long run | Average cost per unit on y. Quantity of output on x. Slow slope down due to economies of scale, then at Q3, cost curve curves upwards quickly - diseconomies of scale (too hard to manage huge company e.g. different departments hate each other). |
| Diseconomies of scale | Very rare almost nonexistent in real world |
| Envelope curve | LRAC comprised of many SRACs - shows you cant have 1.5 factories - each SRAX is before expanding all factors. |
| Container principle | An item of plant and machinery boosts production relatively more than it costs Economies of scale Ouput% > Input% e.g. A380 vs 747: 76>72 length 79>68 width. 868>605 passengers |
| Maersk triple E | Economies of scale between China and California. Can't go through Panama canal but can Suez. 400 x 60m |
| External economies of scale | Changes within whole industry which benefit the firm Tech breakthrough (e.g. EPOS, JIT) Lots of firms concentrated in one area may create a highly skilled pool of labour |
| Different economies of scale on LRAC curve | Movement along curve is internal Curve shifting down is external |
| Silicon valley | Dense core of highly-skilled tech professionals - highly paid Most tech companies (e.g. Apple) based here |
| Name of the link between Oxford, Cambride, London | Technology triangle Silicon fen Cambridge cluster |
| Tech triangle details | Very close for travel Cambridge has over 1500 tech companies employing more than 50k people Europe's most successful technology centre. |
| Things large firms can exploit | Financial economies (lower i from banks due to leverage and can negotiate lower unit costs from suppliers due to volume) Plant economies (plant = factory) - massive warehouses, container principle |
| Dynamic efficiency | Using profit to make dramatic leaps in tech rather than just being stagnant |
| 'Normal profit' | If revenue - cost = 0. Cost includes opportunity cost (e.g. you're only losing money if you'd make more as an accountant) |
| Supernormal profit | Above zero profit. Large firms with monopoly power get this and allows for the R+D needed for major tech breakthroughs - better products for consumers. e.g. ipod funded iphone (now Apple spends 30B USD a year on the next big thing) |
| Good examples for supernormal profit | Apple slightly cliche - could also do Big Pharma, banks (mobile banking), supermarkets (self service and online shopping) |
| How to calculate price even if not given | Look at profit and cost |
| Define scarce | Has an opportunity cost |
| What type of economy of scale is an increase in the amount of skilled workers in an area | External econ of scale |
| Why was streaming a monopoly | Innovative so other firms had barrier to joining industry |
| Why do firms not produce beyond equilibrium? | They have to incentive |
| When mentioning costs | Specify if a cost of production |
| Developed point for economies of scale | Large companies invest in advanced production: greater efficiency and potentially much lower prices for consumers. e.g. robotisation at Amazon ,EPOS, JIT, Tesla Gigafactories (low human involvement) |
| Monopoly riskiness capability | Only mega companies can risk billions: e.g. Apple devoted $10B to self-driving electric car Project Titan, then abandoned in 2024 |
| Big Pharma stats | Only 12% of drugs by big pharma make it to market, investing billions |
| Benefits of non-price competition examples | Amazing after sales service from AppleCare Amazon investment in super-fast delivery boosts consumer convenience Loyalty mechanisms e.g. airmiles, Nike 25% bday discount |
| Whats the term for increasing prices for the inelastic | Price discrimination |
| Cons of price discrimination | Not everyone can take advantage of discounts - equity issues (e.g. teachers can only go on holiday when most expensive, poor people can't shop around, supermarkets charge more in affluent areas - gentrification) |
| e.g. of monopolies self rewarding | Tesco spending £9m on private jets |
| Inefficiency diagram | Cost on y and quantity on x. Two curves with one higher, with arrow between them labelled with 'X inefficiency' - we don't know how large it is |
| What is asymmetric info in AQA's view | e.g. selling dud spare care or telling insurance you don't smoke when you do. Is a form of information failure. |
| Concentration ratios | Literally just the percentage market share of each of the top firms added. Oligopoly is more than 50% 5-firm concentration ratio. |
| Talking about crop production | Consumers dont eat crops - mention that products made from |
| Unhealthy food | The crop isn't necessarily harmful mention the fat + sugar added later on |
| Crowding out | Apparently not too strong so avoid relying on if possible |
| 'Large pay bonuses received by top executives have causes income inequality to increase' this statement....... | Is an example of a hypothesis that can be tested. |
| Dynamic efficiency | an economy or firm's ability to adapt and improve its productivity over time in response to changing markets, technologies, and customer preferences |
| comparative advantage | can produce a good at a lower opportunity cost to another |
| Absolute advantage | when a country can produce more of a good with the same factor inputs. |
| Pros of global specialisation | o Greater world output, so there is a gain in economic welfare. o Lower average costs, since the market becomes more competitive. o There is an increased supply of goods to choose from. o There is an outward shift in the PPF curve. |
| Cons of global specialisation | Non-developed countries run out of non-renewables Export dependence harmed by weather/market changes |
| network economies of scale | expansion of ecommerce. Large online shops, such as eBay, can add extra goods and customers at a very low cost, but the revenue gained from this will be significantly larger |
| price takers | Firms with no control over market price (perfect competition) - AR curve is horizontal. This shows the perfectly elastic demand for their goods |
| What affects market structures (aka monopoly vs competitive) | Number of firms, product differentiation (price/branding/quality - perfectly competitive market has homogenous products - affect XED), ease of entry |
| Ease of entry factors | EoS, brand loyalty (demand inelastic), controlling important tech, reputation, statuatory (e.g. need licenses, patents), structural (differences in production costs), strategic (firm strategy e.g. undercutting), backwards vertical integration |
| backwards vertical integration | Producer merges with supplier to get cheaper and steadier access |
| A perfectly competitive market has the following characteristics | o Many buyers and sellers o Sellers are price takers o Free entry to and exit from the market o Perfect knowledge o Homogeneous goods o Firms are short run profit maximisers |
| What does the 'short run profit maximisers' entail? | Firms making profit incentivises new producers, so profit competed away as supply rises. Therefore long term profit will be competed away so firms care more about short run profit maximising. Lower profits in the market. |
| The invisible hand of the market | Price mechanism - how resources are allocated. Removes resources from surplus and puts them into shortages. Solves the basic economic problem. |
| Interesting point of why monopoly price bad | Lower consumption so needs + wants of consumers not met |
| Poorest in UK | Those with the lowest incomes are the unemployed, the underemployed, the elderly and low skilled workers |
| Why short run average cost curve U shaped | because the factors of production are fixed. At one point, employing more resources will be less productive, which means the marginal output decreases per extra factor of production. Marginal costs start to increase. Diminishing returns |
| Demand shock | Sudden change to demand. Positive OR negative e.g. huge tax cut to huge spending |
| Tourism effect | Negative consumption externality |
| Why is the welfare loss triangle where it is | At market equilibrium, fundamentally benefits less than cost. True for every point before social equilibrium, so triangle. |
| The context knowledge before e.g. 15 markers | VERY useful for hints and general points |
| Explaining simple concepts e.g. multiplier for 15 marks | Briefly talk about -ve multiplier as well (or micro equivalent) |
| MSC/MSB graph for e.g. cigarettes (interesting debate) or more obviously heroin | MSC and MSB both come from y axis and never cross. Always a market failure. Never a level where benefits are greater than costs. The greater the consumption, less benefits more costs. Free market shouldn't be given the chance. |
| Remember to mention | C E T E R I S P A R A B U S C E T E R I S P A R A B U S |
| Unitary elasticity | The concept of max revenue at PED = -1 is for a single point - not for Qs about decrease in revenue by increasing prices, because we don't know if this is a straight line demand curve. Simply, PED = change/change, so if =1, no change to revenue. |
Created by:
Pyrogearos2