Micro

• Factors of production:

  • land
  • labour
  • capital
  • enterprise
• Land:

  • the natural resources available for production in an economy
  • includes all raw materials that are naturally occurring
  • examples - oil, trees, the sea and soil
• Labour:

  • the workforce available for production in an economy
  • it is affected by the quantity and quality of people able to work
  • the quality of the workforce is particularly affected by education and health
• Capital:

  • the man-made aids to production in an economy
  • includes different types of machines and infrastructure
  • examples - roads that are used during the manufacture of other goods and services
• Enterprise:

  • the factor of production that involves taking a risk and organising the other three factors of production
  • performed by entrepreneurs
  • they organise the other factors of production to create goods and services and bear the risks of the production process
• economic problem - there are unlimited wants but scarce resources

  unlimited wants - the infinite desire for something

  scarce resources - when there is an insufficient amount of something to satisfy all wants
• opportunity cost - the next best alterative given up when making a choice
• Economic sustainability - the best use of resources in order to create responsible development or growth, now and into the future

  Costs:

  • costs of production, such as raw materials
  • the price of the good that the consumers pay

  Benefits:

  • potential sales and profits over time
  • any financial benefits that result from the economic choice
• Social sustainability - the impact of development or growth that promotes an improvement in quality of life for all, now and into the future

  • encourages fairness and a better society with respect for others and their quality of life
  • a happier society may lead to a more productive economy over time
• Environmental sustainability - the impact of development or growth where the effect on the environment is small and possible manage, now and into the future

  Considers the impact of:

  • use of renewable resources
  • use of non-renewable resources
  • actions resulting in different types of pollution and potential climate change
• market - a way of bringing together buyers and sellers to buy and sell goods and services

  market economy - an economy in which scarce resources are allocated by the market forces of supply and demand
• Primary sector - the direct use of natural resources including extraction of basic materials and goods from land and sea

  • examples - agriculture, fishing, farming, forestry, mining, oil and gas extraction, quarrying
• Secondary sector - all activities in an economy concerned with either manufacturing or construction

  • manufacturing - uses raw materials to make goods or parts to go into other goods
  • construction of buildings (e.g. houses) and infrastructure (e.g. roads)
• Tertiary sector - all activities in an economy that involve the idea of service

  • examples - transport, retailing, entertainment, tourism, finance, media, health, education, governement
• Factor market - where the services of the factors of production are bought and sold

  Key ideas:

  • involves the buying and selling of the services of the factors of production
  • the price of factors is decided by the interaction of demand and supply
  • demand for the factors depends on the demand for the good or service produced
  • households supply labour in return for wages/salaries
• Product market - where final goods and services are offered to consumers, businesses and the public sector

  Key ideas:

  • buying and selling of final goods and services
  • households, other firms and the public sector are the buyers
  • prices are determined by the intersection of supply and demand for the good or service
• specialisation - the process by which individuals, firms, regions and countries concentrate on producing those products that they are best at doing

  exchange - the giving up of something that an individual or firm has in return for something they wish to have, but do not possess
• Specialisation for producers

  Costs:

  • diseconomies of scale: as output increases costs may eventually rise
  • if one part of the process fails then the whole production system may stop
  • may not be able to buy necessary scarce resources or companies
  • movement of workers: workers may become bored and leave or produce less
• Specialisation for producersBenefits:

  • higher output: total production of goods and services is increased
  • higher productivity: as workers become more skilled
  • higher quality: as the best factors can be employed
  • bigger market for each product means there should be more buyer for each producer
  • economies of scale: larger output enables these to be gained
  • specialisation saves time and money
• Specialisation for workers

  Costs:

  • boredom: leading to demotivation
  • deskilling: workers are unable to do different jobs so are less able to respond to changes
  • unemployment and may be easier to replace them with machines
• Specialisation for workers

  Benefits:

  • increased skill so they may earn more
  • workers are able to do what they are best at, allowing them to earn more
  • increased job satisfaction: doing what they're good at increases motivation and satisfaction
  • increased standard of living by earning more
• Specialisation for regions

  Costs:

  • if demand falls then the industry may collapse
  • if resources run out then those employed in the in industry will become unemployed
  • loss of advantage as another region/country becomes better at producing, leading to unemployment
• Specialisation for regions

  Benefits:

  • a region makes best use of its resources
  • creates jobs for residents near to home
  • development for better infrastructure and supply industries
• Specialisation for countries

  Costs:

  • as specialisation changes, workers in the declining industry become unemployed
  • over-specialisation: if world demand changes the economy may collapse
  • increased output leading to over-exploiting resources so unsustainable development
  • negative externalities can lead to serious environmental damage
• Specialisation for countries

  Benefits:

  • countries will specialise in what they do best, leading to greater efficiency and output
  • more jobs: the increased output may result in more investment and job creation
  • international trade of the surplus output and greater choice of products for its people
  • increased choice, income, output and infrastructure gives a better standard of living
  • government revenue increases leading to better schools, hospitals, etc
• demand - the willingness and ability to purchase a good or service at the given price in a given time period

  law of demand - normally the quantity demanded varies inversely with the price

  individual demand - the demand for a good or service by an individual consumer

  market demand - the total demand for a good or service found by adding together all individual demands
• Causes of shifts of the demand curve:

  • increase in income - consumers can buy more products at every price
  • increase in marketing (advertising) - persuades consumers to demand more products at every price
  • change in taste and fashion - if people prefer smartphones to notebook computers, then demand for smartphones increases
  • preference for a substitute - if honey and jam are substitutes and consumers decide to use honey, then demand for it will increase
  • complementary good - if the price of one good falls, then demand for any good which goes with it will increase
• Causes of shifts of the demand curve:

  • expectation of a rise in price - consumers will buy more products now to save money in the future
  • government policies - a subsidy or a cut in tax will increase consumers' demand
  • population changes - if population rises so does demand for products. if the population is ageing, demand for goods suited to older people will increase. gender working patterns
• price elasticity of demand (PED) - the responsiveness of quantity demanded to a change in price of the product

  elastic demand - when the percentage change in quantity demanded is greater than the percentage change in price

  inelastic demand - when the percentage change in quantity demanded is less than the percentage change in price
• Importance of PED for consumers:

  • if the product they buy has inelastic demand then they are likely to face price rises as suppliers can easily pass on cost increases
  • if the product they buy has inelastic demand then the governemnt can impose high taxes raising prices
  • allows them to make choices if substitutes are available
  • consumers PED may depend on factors such as the weather/time of the year or day
• Importance of PED for producers:

  • allows producers to maximise their total revenue
  • can charge different prices to different groups of people for the same product
  • can affect their decision whether to supply the product or not
• supply - the willingness and ability of firms to provide goods and services at each price in a given time period

  law of supply - normally, the quantity supplied varies directly with the price

  individual supply - the supply of a good or service by an individual producer

  market supply - the total supply of a good or service found by adding together all individual producers' supplies
• Causes of shifts of the supply curve:

  • increase in costs of production - producers would supply less at each price
  • increases in taxes and subsidies - increase in indirect taxes means a rise in costs. increase in subsidies ha the opposite effect
  • new technology - is likely to lead to a fall in costs and thus a rightward shift
  • climate change - in agriculture, climate warming may mean less can be supplied of a product
  • increase in producers or size of firms - leads to more being supplied at every price
  • government regulation - introduction of new government regulations will increase costs
• price elasticity of supply (PES) - the responsiveness of quantity supplied to a change in the price of the product

  elastic supply - when the percentage change in quantity supplied is greater than the percentage change in price

  inelastic supply - when the percentage change in quantity supplied is less than the percentage change in price
• Importance of PES for consumers:

  • if the product consumers buy has an inelastic supply, then they are likely to face high prices in order to obtain more
  • if the product they buy has a very inelastic supply, then they may not be able to get more as the quantity is fixed. this can give rise to ticket touts when demand exceeds supply
  • if the product they buy has an inelastic supply then it is quite easy to purchase more
• Importance of PES for producers:

  • firms would prefer an elastic supply as it is easier to respond to price changes
  • more elastic supply enables a firm to be more flexible in what it offers consumers
  • very inelastic supply means that the price will depend entirely on the demand
  • can lead to losing control of the price to ticket touts
• price - the sum of money which has to be paid for a good or service equilibrium price and quantity - where the quantity supplied exactly matches the quantity demanded
• competition - where different firms are trying to sell a similar product to a consumer
• Why do producers compete?

  • to enter a new market
  • to survive in a market
  • to make a profit - this will be needed to survive and grow
• Price competition:

  • this means cutting prices
  • it leads to more consumers and greater market shares
  • those who cannot cut prices may go out of business
  • but selling at a price less than the cost of supplying may lead to a disaster
  • price competition is easier for large firms with many products to sell