Micro
Scarcity: unlimited wants and finite resources
Factors of production:
Capital, Enterprise, Land, Labour (CELL)
Renewable: once used can be replaced again and stock level doesn’t diminish. For e.g.
hydro, wind and solar energy
Non-Renewable: once used, cannot be reused again; stock level diminishes. For e.g. fossil
fuels
Normative: based on value judgements, subjective, non- scientific approach to decision
making, and cannot be tested as right or wrong (should, could, unfair, fair, good, bad)
Positive: based on facts, objective, scientific approach to decision making, and can be tested
for right or wrong (words: is, are)
Types of market systems
o Free: Resources are allocated by the price mechanism and owned by the private
sector. There is no government intervention. Advocated by Adam Smith.
o Mixed: Resources are allocated partly by the price mechanism and partly by the
government. Resources are partly owned by the private sector and partly by the
government. Advocated by Friedrich Hayek.
o Command: resources allocated and owned by government. Advocated by Karl Marx.
Specialisation and Division of Labour
When a task is broken down into smaller, more manageable tasks and then each person
specialises in that task
Benefits:
- Tasks are done quicker and less time required for training
- More skill, therefore greater efficiency so greater productivity
- Greater output being produced, therefore lower cost per unit
Disadvantages:
- Increased boredom due to work being repetitive/ monotonous
- Greater absences from work / greater labour turnover (leave job)
- Workers get easily replaced by machines (structural unemployment)
- Greater interdependence, which slows down operations, loss of customers
, Production Possibility Frontier (PPF)
- Maximum combination of 2 goods that an economy can produce when it’s resources
are fully and efficiently employed, given the level of technology available
Opportunity cost
Cost of the next best alternative forgone (see above graph)
Functions of money
Money: anything that can be used to buy goods and services.
Store of value: facilitates savings
Measure of value: monetary value
Medium of exchange: buying and selling
Method of deferred payment: borrowing
, Demand
- The want of a good or service with the ability to pay a given price at a given time
period. As the price increases, the quantity demanded decreases. Therefore, there is
an inverse relationship
Factors affecting Demand (PRICE FASTICS)
1. Price of the good Change in price of the good leads
2. Fashion/tastes/preferences to a movement along the demand
3. Advertising/branding curve, whereas change in FASTICS
4. Seasonality/ Speculation leads to shift of the demand curve
5. Taxes (income)
6. Income of the person
7. Complimentary goods prices
8. Substitute good prices
Supply
- The ability of a firm to sell a good or service at a given price
- As price increases, quantity supplied increases: a positive relationship
Factors affecting Supply
1. Price of the good
Change in price of the good leads
2. Advancements in technology
to a movement along the supply
3. Subsidies, grants by government
curve, whereas change in ASCOT-W
4. Costs of production
leads to shift of the demand curve
5. Other firms in the market
6. Taxes (VAT and corporation)
7. Weather conditions / harvests
Types of Elasticity
PED
Equation:
%change in QD
%change in Price
- Sensitivity/responsiveness of changes in Quantity Demanded to a change in price
- PED is always negative as Price increases, Demand goes down (inverse relationship)
- Ignore the minus sign when deciding if a good is elastic or inelastic (if the number is
greater than 1 then it is elastic, and if it is less than 1, it is inelastic
Scarcity: unlimited wants and finite resources
Factors of production:
Capital, Enterprise, Land, Labour (CELL)
Renewable: once used can be replaced again and stock level doesn’t diminish. For e.g.
hydro, wind and solar energy
Non-Renewable: once used, cannot be reused again; stock level diminishes. For e.g. fossil
fuels
Normative: based on value judgements, subjective, non- scientific approach to decision
making, and cannot be tested as right or wrong (should, could, unfair, fair, good, bad)
Positive: based on facts, objective, scientific approach to decision making, and can be tested
for right or wrong (words: is, are)
Types of market systems
o Free: Resources are allocated by the price mechanism and owned by the private
sector. There is no government intervention. Advocated by Adam Smith.
o Mixed: Resources are allocated partly by the price mechanism and partly by the
government. Resources are partly owned by the private sector and partly by the
government. Advocated by Friedrich Hayek.
o Command: resources allocated and owned by government. Advocated by Karl Marx.
Specialisation and Division of Labour
When a task is broken down into smaller, more manageable tasks and then each person
specialises in that task
Benefits:
- Tasks are done quicker and less time required for training
- More skill, therefore greater efficiency so greater productivity
- Greater output being produced, therefore lower cost per unit
Disadvantages:
- Increased boredom due to work being repetitive/ monotonous
- Greater absences from work / greater labour turnover (leave job)
- Workers get easily replaced by machines (structural unemployment)
- Greater interdependence, which slows down operations, loss of customers
, Production Possibility Frontier (PPF)
- Maximum combination of 2 goods that an economy can produce when it’s resources
are fully and efficiently employed, given the level of technology available
Opportunity cost
Cost of the next best alternative forgone (see above graph)
Functions of money
Money: anything that can be used to buy goods and services.
Store of value: facilitates savings
Measure of value: monetary value
Medium of exchange: buying and selling
Method of deferred payment: borrowing
, Demand
- The want of a good or service with the ability to pay a given price at a given time
period. As the price increases, the quantity demanded decreases. Therefore, there is
an inverse relationship
Factors affecting Demand (PRICE FASTICS)
1. Price of the good Change in price of the good leads
2. Fashion/tastes/preferences to a movement along the demand
3. Advertising/branding curve, whereas change in FASTICS
4. Seasonality/ Speculation leads to shift of the demand curve
5. Taxes (income)
6. Income of the person
7. Complimentary goods prices
8. Substitute good prices
Supply
- The ability of a firm to sell a good or service at a given price
- As price increases, quantity supplied increases: a positive relationship
Factors affecting Supply
1. Price of the good
Change in price of the good leads
2. Advancements in technology
to a movement along the supply
3. Subsidies, grants by government
curve, whereas change in ASCOT-W
4. Costs of production
leads to shift of the demand curve
5. Other firms in the market
6. Taxes (VAT and corporation)
7. Weather conditions / harvests
Types of Elasticity
PED
Equation:
%change in QD
%change in Price
- Sensitivity/responsiveness of changes in Quantity Demanded to a change in price
- PED is always negative as Price increases, Demand goes down (inverse relationship)
- Ignore the minus sign when deciding if a good is elastic or inelastic (if the number is
greater than 1 then it is elastic, and if it is less than 1, it is inelastic
