things i don’t know econ

• specialization = production of a limited range of goods by an individual, business meaning trade is vital
• divison of labour = adam smith
• money as a measure of value = compare the value of 2 goods
• free economy = resources allocated through the price mechanism
• pro of free economy:

  • automatic system due to the invisable hand where production will stop if a good is no longer demanded
  • freedom of choice known as consumer soverinity
• con of planned economy:

  • government doesn’t have all the informstion which could lead to an over supply of goods
• mixed economy = where the free market and market economy allocate resources throughout a country
• allocative efficiency = measured weather resources have been allocated to goods or services in an optimal manner in response to demand
• effective demand = the willingness and ability to pay for a good
• product market = a good or service the consumer derives utility from and wanted for consumer satisfaction
• commodity market = raw materials or minerals used in the production of goods and services
• labour market = buying and selling of labour time for the production of goods and services
• other determinants of demand:

  • income
  • population
  • advertising
• index number = a figure reflecting price or quantity compared with a base value
• composite demand = when a good or service is demanded for more than one use so an increase in demand for 1 would decrease the supply of the other
• negative externalities cause if market failure = as the price mechanism doesn’t take into account the true social cost or benefit of an economic activity
• de merit good = too many scare resources are devoted to the production causing the market to fail
• pro of minimum price

  • reduce consumption reducing negative externities
  • no cost to gov

  con of minimum price

  • reduce discretionary income ( income you choose to spend on things you want)
  • fall in profit if demand decrease
• pro of maximum price

  • consumer surplus and welfare gain
  • increase efficiency as firms incentives to keep costs low

  con of maximum price

  • gov may misjudge level reducing firms profit
  • firms could increase prices of other products
• cause of gov failure:

  • distortion of the price signals = if the loss to consumer and efficiency are greater than the gains of the producers then gov failure has occurred
• volume of GDP = GDP adjusted for inflation, the size of the basket of goods
• value of GDP = monetary value of GDP at prices of the day

  = volume x current price level
• how gdp is calculated:

  expenditure method ( c+ i + g + (x-m))

  factor income method (income profits)

  valour of output method( value from each main sector )
• causes of demand pull inflation

  • expansionary monetary policy (cut interest rate)
  • gov spending
  • business confidence
  • fiscal stimilus (cut tax)
• cause of cost push inflation

  • higher wage demands
  • gov regulation
  • supply disruptions
  • depreciation of the currency
• inflation of consumers - real value of debt falls, may bring foward spending

  inflation on gov - real value of debt falls and borrowing costs increase
• current rate of unemployment in 2023 = 4.3%
• ways to help unemployed

  • allowing. working people to save more into private mentions
  • extending free childcare
  • gov aid to those with disabilities or health conditions
• structural unemployment = due to the changing structure of the economy causing a lack of skills and qualifications for jobs
• cyclical unemployment = lack of demand in the economy usually when economy is low and less aggregate demand causing redundancies and cyclical unemployment
• national debt = the total borrowing of a country
• balance of payments = record of the transactions between one country and the rest of the world
• current account = flow of transactions between one country and the rest of the world
• current account surplus = value of exports is more than the value of imports so net inflow of money into the country
• balance of payments = current account + capital and financial account + net errors and emissions
• primary income

  • income on direct investments
  • taxes on income and wealth
  • compensation of employees
• secondary income

  • remittances
  • foreign aid
  • payments to international institutions
• capital and financial account = flows of assets, liabilities and investment between countries
• net errors and omissions = difference between what we think happens and what actually does happen
• trade balance = total value of goods and services exported minus those imported