ECONOMICS SHORT NOTES

• Economic agents


  Households, firms that operate in the private sector of an economy and the government
• Economic good


  A product that has undergone production and incurs an opportunity cost
• Free good


  Goods which aren't produced and are free
• Renewable resources


  Can be replaced by nature
• Non renewable resources


  Cannot be replaced by nature
• Occupational Mobility


  Refers to the extent to which labour is able to move between jobs
• Geographical mobility


  Refers to the extent to which labour is willing and able to move to different locations for employment purposes
• Production possibility curve (PPC)


  Represents the maximum combination of goods and services which can be produced in an economy
• Points on PPC


  • If the economy operates on the PPC it shows efficiency
  • If the economy operates inside PPC it shows inefficiency
  • If the economy operates outside PPC it shows scarcity
• Shift on PPC


  • Outward shift shows economic growth
  • Inward shift shows economic recession
• Labour intensive method


  Use of more labour than capital
• Capital intensive method


  Use of more capital than labour
• Microeconomics


  The study of particular markets and sections of the economy, rather than the economy as a whole
• Macroeconomics


  The study of economic behaviour and decision making in the whole economy, rather than individual markets
• Market economy


  Consumers determine what to produce, resources are allocated through price mechanism and land and capital are privately owned
• Advantages of market economy

  • Freedom of choice
  • Competition
  • Efficiency
• Disadvantages of market economy

  • Monopoly power exists
  • Merit goods are underprovided
  • Uneven distribution of income
• Planned economy


  Government makes critical decisions, land and capital are state owned and resources are allocated by directives
• Advantages of planned economy

  • Public goods are provided
  • Low inequality
  • Low unemployment
• Disadvantages of planned economy

  • Less competition leads to inefficiency
  • More rules and regulations
  • Lack of technology and innovation
• Mixed economy


  Resources are owned and controlled by both private and public, allocated through price mechanism and directives
• Advantages of mixed economy

  • Inequality reduced
  • Efficiency because of competition
  • Social welfare taken into account
• Disadvantages of mixed economy

  • Risk of nationalisation to private sectors
  • Rules and regulations slow the process of private sector organisations
  • Inefficiency of public will fall into people in form of tax
• Government's role


  • Takes all costs and benefits into account
  • Finances products which can't be charger for
  • Prevents high prices set by private firms
• Equilibrium price


  Exists when the demand for a product matches the supply, so there is no excess demand or excess supply also known as market clearing price
• Disequilibrium price


  Exists if the price for a product is too high or too low
• Price mechanism


  Refers to the system of relying on the market forces of demand and supply to allocate resources
• Surplus production


  Supply is more than demand
• Shortage


  Demand is more than supply
• Demand


  Refers to the willingness and the ability of customers to pay a given price to buy a good or service. The higher the price of a product, the lower its demand tends
• Demand curve


  • P 👆, QD 👇
  • P 👇, QD 👆
• Movement along the demand curve

  • Extension ↘
  • Contraction ↖
• Shift on demand curve

  • Increase 👉
  • Decrease 👈
• Factors affecting demand


  • Taste and fashion
  • Population
  • Advertising
  • Substitutes
• Substitutes


  Goods or services that can be used instead of each other, e.g.tea or coffee
• Complements


  Products that are jointly demanded, e.g. tennis balls and tennis racquets
• Supply


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

  
• Supply curve


  • P 👆, QD 👆
  • P 👇, QD 👇
• Movement along the supply curve

  • Extension ↗
  • Contraction ↙
• Factors affecting supply


  • Disasters and wars
  • Price of other products
  • Cost of production