LS7-LS9 Booklet

• Making rational decisions means buying products that maximise utility
• Utility is the benefit derived from consuming a good
• Utility for firms is profit. Maximising profit is achieved through producing as efficiently as possible, making things that consumers both want and can afford
• to make rational decisions: time, information, and ability to process information is required
• habitual behaviour, consumer inertia, being influenced by others behaviours, and computation (inability to process info) all prevent rational decision making
• demand is the quantity of a good or service purchased at a given price over a given period of time
• supply is the quantity of a good or service firms are willing to sell at a given price over a given time period
• the private sector is more efficient than the public sector as it faces lots of competition. This acts as an incentive to firms so they can minimise costs and be as efficient as possible, in order to stay ahead of rivals
• according to classical and neuroclassical economics, firms aims to maximise profit and minimise costs
• changes in incomes and changes in consumer tastes affect demand
• revenue is the income that a government or firm receives as a result of selling the goods and services it produces
• when price increases, quantity supplied increases
• when price decreases, supply decreases
• a change in number of substitutes and compliments causes a shift in the demand curve
• command economy - public sector controls production of all goods and services
• Free market economy - not controlled by the government
• Free market economy— controlled by the private sector
• mixed market economy: public and private sector controls economic activities
• Store of value - waiting before buying something if they know their money will be of similar value in the future
• specialisation makes trade essential as we have to obtain the goods and services that the economy is no longer making because it is focusing on the production of limited goods and services
• Specialisation makes it essential for a medium of exhange
• medium of exchange - cash and card used to buy other goods and services