ECONOMICS PAPER 1

• Benefits of specialisation for producers


  - Higher output

  - Higher Productivity

  - Higher quantity produced

  - Economies of scale
• Costs of specialisation for producers

  - Dependency on certain factors of production

  - Loss of workers

  - Diseconomies of scale: As output rises, costs may also rise
• Benefits of specialisation for workers

  - Increased skills

  - Use of natural strengths

  - Job satisfaction

  - Higher standard of living
• Costs of specialisation for workers

  - Boredom

  - Deskilling

  - Unemployment as they are easier to replace with machines
• Benefits of specialisation for regions

  - Efficiently uses resources

  - More employment
• Costs of specialisation for regions

  - Risk of a fall in demand in that particular sector

  - Resource exhaustion

  - Loss of advantage as a another country becomes better

  - Negative environmental externalities
• Causes of shifts in demand

  1) Population

  2) Advertising

  3) Substitutes and complements

  4) Income

  5) Fashion and Trends

  6) Interest rates

  7) Confidence
• Value range of elastic demand

  1 to Infinity
• Value range of inelastic demand

  0 to -1
• PED of unitary price elastic


  -1
• PED of perfectly price inelastic

  0
• PED of perfectly price elastic

  Infinity
• Factors that affect PED

  1) Availability of substitute goods

  2) Proportion of consumers budget consumed by the item

  3) Degree of necessity

  4) Brand loyalty
• Causes of shifts in supply

  1) Productivity

  2) Indirect Taxes

  3) Number of firms

  4) Technology

  5) Subsidies

  6) Weather

  7) Costs of production
• Consequences of shifts in supply curves

  1) Economies of scale

  2) Greater efficiency

  3) Greater sales

  4) Greater exports

  5) Market share consolidation
• PES of price inelastic

  0 to 1
• PES of price elastic

  1 and infinity
• Factors that affect the price elasticity of supply

  1) Spare production capacity

  2) Stocks of finished products

  3) Time period and production speed

  4) Ease and cost of factor mobility
• Functions of price

  1) Signalling

  2) Incentives

  3) Rationing
• Positive impact of competition on producers

  1) Forces producers to improve their efficiency and reduce costs

  2) Increases the productivity of the factors of production

  3) More innovation to stay ahead of the competition
• Negative impacts of competition on producers

  1) Lose consumers and possibly go out of business

  2) May have to use expensive capital instead of traditional workers
• Positive impacts of competition on consumers

  1) Cheaper prices

  2) Improved quality G+S

  3) More choice

  4) Increased consumer sovereignty
• Negative impacts of competition on consumers

  1. Innovations may have negative externalities (e.g. pesticides)

  2. Quality may fall if producers cut corners

  3. Marketing may persuade consumers to buy what they do not want
• Advantages of an increase in production

  1) Increase in employment

  2) Rise in standard of living

  3) Increase in profits

  4) Larger economies of scale

  5) Firms may gain greater market share
• Disadvantages of an increase in production

  1. Workers may be replaced by machines

  2. Environmental problems
• Consequences of higher productivity

  1. Lower average costs and increased economies of scale

  2. Increased profits leading to better raing and more investment

  3. Increased total output

  4. More exports
• Types of internal economies of scale

  1. Risk-bearing

  2. Financial

  3. Managerial

  4. Technical

  5. Marketing

  6. Purchasing or bulk-buying
• Types of external economies of scale

  1. Concentration of firms

  2. Education and training facilities

  3. Location

  4. Transport
• Factors affecting the demand for labour

  1. Demand for products

  2. Wage rates

  3. Real wages

  4. Productivity of labour

  5. Profits of firms

  6. State of the economy
• Factors affecting the supply of labour

  1. Wage rate

  2. Overtime pay

  3. Working conditions

  4. Education and training

  5. Barriers to entry

  6. Size of working population
• Roles of the financial sectors

  1. Credit provision

  2. Liquidity provision

  3. Risk management
• Benefits of credit provision in the financial sector

  1. Help consumers buy more expensive things like houses through mortgages

  2. Producers can borrow money to cope with a large expansion in business

  3. Governments can un a budget deficit or spend before taxes are collected
• Negatives of credit provision in the financial sector

  Too easy access to credit cards can lead to people/companies being trapped in debt and living/operating beyond their means
• Benefits of liquidity provision in the financial sector

  1. Allows people to move money easily when they need it most. Eg. car accident

  2. Banks provide overdraft facilities for firms so there can continue trading whilst waiting for payments
• Benefits of risk management in the financial sector

  1. Allows savers to spread their risk by diversifying portfolio

  2. Reduces risk of firms not receiving payment especially when exporting or not receiving money on time

  3. Allows the government to engage in vital expenditure even when revenue is uncertain