economics paper 1

• Difference between a need and a want


  Need- Any good or service that we require/ is necessary for survival Want- Any good or service that is desired but not necessary.
• What are the key economic decisions?

  What to produce How to produce Who is to benefit from the goods and services produced
• What are the main economic groups?

  Consumers - Those who demand the goods or services Producers - Those who supply the G&S Government - decides who should benefit amd how to distribute the G&S.
• Factors of production


  Land - All natural physical resources, reward is rent Labour - human input into production, reward is wages Capital - capital goods are used to produce other consumer goods and services in the future. Reward is intrest Enterprise - an indiviual who supplies products or services, reward is profit
• Opportunity cost


  The cost of any possible alternative when making a choice
• What is a market?

  An opportunity for buyers and sellers to meet and determine the price of a good or service
• The three functions of price


  Rationing - Allows some people to afford the G/S but prevents others from being able to make the purchase Signalling - The price signals something about the G/S that is important to potential buyers. Incentive - The price of a good/service can act as an incentive for a supplier to provide it
• Factor market


  Market for factors of production (land, labour, capital and enterprise)
• Product market

  Market concentrating on the sale of the final product or service.
• Economic sectors


  Primary - land economic resources/ agriculture and mining Secondary - manafacturing or assembly of products Tertiary - provision of services that support primary and secondary sectors
• What is specialisation, and what are their benefits


  The concept of how an economy will start to concentrate on the production of goods or provide services at which it is most efficient Benefits - Higher output,variety, lower prices
• Division of labour


  When a firm may seperate its workforce so that many seperate tasks are taken by specific individuals.
• Advantages and disadvantages of division of labour

  Adv: Individual becomes more competent increase in productivity employer able to afford specific training, as output will eventually increase Dis: Worker can become bored of their job as it is repititive = lower morale levels = low output and productivity High levels of staff turnover(the rate at which an employee leaves the place) reduced choice for consumers
• What is Demand


  Demand refers to the quantity of a good or service that consumers are willing and able to buy at given prices over a given period of time
• Main conditions of demand


  Price of subsitute goods price of complementary goods disposable income intrest rates, haram population size
• Supply

  Refers to the quantity of a good or service that firms or producers are willing and able to supply at a given price over a given period of time
• Main conditions of supply


  Cost of production Technology Taxes Subsidies Weather number of firms in industry
• Price elasticity of demand

  Defined as the responsiveness of quantity demanded to a change in price/how elastic demand is
• Factors that affect PED

  Subsititutabilty- Is there alternatives? if not, demand will be insensitive Percentage of income - if small percentage of income, indiviuals would still buy, so demand is insensitive If it is a need or a want Is it a addictive good? if yes, demand would be insensitive to price changes
• how to work out PED


  Percentage change in quantity demanded/percentage change in price (answer will always be negative, so - sign needed) If PED is greater than 1, it is seen to be price elastic If PED lower than 1, said to be inelastic
• Price elasticity of supply


  The responsiveness of quantity supplied to a change in price
• The factors that affect PES

  Availabilty of stocks - if stocks are scarce, supply cannot respond quickly, so supply would be insensitive to change in price Spare production capacity Time
• Calculating PES


  percentage change in quantity supplied/percentange change in price If greater than 1 = elastic If lower than 1 = inelastic
• Main Business objectives


  Profit maximisation - Maximising return to business owners, seen as reward (profit can be seen as sales revenue - cost of production) Sales growth - Some firms may wish to maximise number of units of products or services that they sell. Increasing market share - So they can beat competitors and possibly gain customer loyalty and mantain profits
• Different types of costs

  Fixed costs - A cost that dosent change eg.rent Variable cost - Any cost that does change eg.raw materials Total cost - The total cost of all G&S produced Average cost - Total costs of G&S divided by number of units produced
• Formulas you may need to know

  Total cost = fixed cost + variable Average cost = total/output average revenue = total revenue/output
• Ethical and moral considerations

  Sufficient business taxes are paid Equality of pay for staff Environmental impact Exploitation of workers
• Production


  Refers to the process of manafacturing a product
• productivity

  The level of effiency throughout production process
• Methods of improving productivity

  Division of labour Training of workers Use of Technology Moral boosters
• Benefits of increased productivity

  increased output lower costs competitiveness increased quality of products are better higher wages for workers if paid comission
• Economies of scale? and what are they


  Any financial advantage that comes from increasing output or production and which leads to a fall in average unit costs Technical economies - Use of Tech, can inrease speed and accuracy of production, however can be expensive. Purchasing economies - Businesses may be able to buy materials cheaper, if bought in bulk. Marketing economies - A firm which is selling on a large scale may be able to afford effective advertising. Financial economies - Businesses making larger loans can often do so at lower intrest rates. Managerial economies - Larger firms can afford to employ more managers, increased effiency Risk bearing economies - Larger firms are able to increase range of products that they produce, they will now be able to cope with decreased demand.
• Diseconomies of scale


  Any factors that lead to an increase in average cost Communication problems - some staff may not know all info for larger firms as many employees Co-ordination and control problems - the more employed, the more likely people will operate in different ways Morale - Large firms have lots of employees so some may not feel as important
• What is a competitive market?

  A market that has many buyers and sellers
• How does competition impact the main economic groups?

  Consumers - They will benefit as there are lots of sellers, so they can find cheaper goods and more of a variety. Also, improved quality of products as firms innovate to survive. Producers - They will have to become more effecient to survive. Government - Increased well being for consumers, however profits for firms would be lower, so lower tax revenues
• What is a non competitive market?


  A market that has a few sellers. A market that has only one seller is called a MONOPOLY A market with a few sellers is called a OLIGOPOLY
• Characteristics of a non competitive market


  Barriers to entry Products are slightly different to set themselves aside from competitors. Prices - Dont have to change prices much as consumers only have a few options. Profit - Very large profits, which may lead to diseconomies of scale
• How does a lack of competition affect the main economic groups?


  Consumers - Higher prices as less options, less drive for firms to insure high quality. Producers - Large profits, less drive for effiency, more funds to innovate(bid'ah) Government - Larger taxation revenues as higher profits
• What is the labour market?


  A market where the supply of labour offered by households interacts with the demand for labour by firms. Demand for labour is said to be 'derived' meaning it is dependant on demand for products and services for which the labour is needed
• How are wages determined?


  Wages are determined by interaction of demand and supply. Government and trade unions influence wage level