a) Understanding of government failure as intervention that results in a net welfare loss Government failure – when the costs of intervention by the government to solve market failure outweigh the benefits –net welfare loss Happens for two reasons: • Government...
a) Purpose of intervention with reference to market failure and using diagrams in various contexts: Indirect taxation (ad valorem and specific) Ad Valorem tax Ad valorem tax is charged as a % of the price of a good or service – leads to an inward shift but with...
a) Distinction between private costs, external costs and social costs Negative externality – social costs of an economic action are greater than the private costs Private costs are costs that occurs to the individual economic agent External costs are costs that accrue...
a) Distinction between public and private goods using the concepts of non-rivalry and nonexcludability Characteristics of a Public Good Non Rival (diminishable) – consequences of a good or service by one person doesn’t inhibit or reduce another person’s benefit from...
Information Failure Information failure – type of market failure where individuals or firms have a lack of information about economic decisions a) The distinction between symmetric and asymmetric information Information asymmetries: Situation where there’s imperfect...
a) The reasons why consumers may not behave rationally: Consideration of the influence of other people's behaviour, The importance of habitual behaviour and Consumer weakness at computation Why do we behave irrationally? Heuristics – Making decisions based upon a rule...
a) Understanding of market failure Market failure – Free Markets lead to an inefficient allocation of resources Government intervention – required in order to bring about economic efficiency and improve social welfare b) Types of market failure Externalities An...
a) Supply and demand analysis, elasticities, and: The impact of indirect taxes on consumers, producers and government and The incidence of indirect taxes on consumers and producers Introduction of a tax increases the cost of production and thus shifts the supply curve...
a) The distinction between consumer and producer surplus Consumer surplus – difference between price a consumer is willing to pay for a good or service and price they actually pay (market/equilibrium price). • Point at which the demand curve crosses y-axis (price) –...
a) Functions of the price mechanism to allocate resources: rationing, incentive, signalling b) The price mechanism in the context of different types of markets, including local, national and global markets The price mechanism consists of three functions of price which...
a) Equilibrium price and quantity and how they are determined Market equilibrium – planned demand is equal to planned supply - no incentive for buyers and sellers to change their market plans - no excess demand or excess supply Price at which both the supplier and the...
a) Understanding of price elasticity of supply Price Elasticity of Supply – measure of the responsiveness of quantity supplied to changes in the price of that good or service It is the ease in which a producer is able to increase the supply of a good or service...
Supply – quantity of a good or service that producers are willing and able to sell at a given price Law of supply – as the price of a good rises, the quantity supplied also rises and vice versa Firms normally want to maximise profits so if they can gain a higher price...
a) Understanding of price, income and cross elasticities of demand Price Elasticity of Demand PED is a measure of the responsiveness of demand following a change in the price of a good or service A measure of how much demand changes when there is a change in the price...
a) The underlying assumptions of rational economic decision making: Consumers aim to maximise utility and Firms aim to maximise profits Rational theory states individuals act in their own self interest and make logical and consistent decision to maximise satisfactions...
a) The distinction between free market, mixed and command economies: reference to Adam Smith, Friedrich Hayek and Karl Marx b) The advantages and disadvantages of a free market economy and a command economy Free Market Economy c) The role of the state in a mixed...
a) Specialisation and the division of labour: reference to Adam Smith Specialisation refers to individuals, firms or an economy deciding to focus on the production of one good or part of a good – It generally increases productivity Division of labour refers to the...
a) The use of production possibility frontiers to depict: Economic growth or decline The maximum productive potential of an economy In most simplistic economy – we assume there are only 2 produced goods, a raft and food PPF shows maximum potential output of an economy...
a) The problem of scarcity – where there are unlimited wants and finite resources Difference between needs and wants Less of what we need than what we want “Needs refer to the minimum that is required for an individual in order to survive. They often tend to include...
a) Distinction between positive and normative economic statements Statement 1: Michael Gove’s decision to abandon January exams will lead to a fall in the average grade at A-level. (Positive) Statement 2: Michael Gove’s decision to abandon January exams should be...
Microeconomics examines decisions made by economic agent – separated into two broad areas: markets and market failure a) Thinking like an economist: the process of developing models in economics, including the need to make assumptions Social science (broadest sense) –...
1.2.10 Alternative views of consumer behaviour
1.2.3 Price, income and cross elasticities of demand
1.1.5 Specialisation and the division of labour
1.1.4 Production possibility frontiers