Economics paper 1

Consumers, producers and government

Land, labour, capital, enterprise

How should goods and services be produced? What should be produced? Who should the goods and services be produced for?

Market, mixed, controlled

Primary, secondary, tertiary

Higher output, higher productivity, higher quality, bigger market, economies of scale, saves time and money

Diseconomies of scale, if one part of the process fails the whole production system may stop, may not be able to buy necessary resources or components, movement of workers

Increased skill (potentially increased wages), increased job satisfaction, increased standards of living

Demotivation, deskilling, unemployment if they are replaced by machines

Makes best use of its resources, creates nearby jobs for residents, better infrastructure

If demand falls industry may collapse, resources may run out, other region could become better at producing

Greater efficiency and output, more jobs, international trade with surplus output, improved infrastructure, increased standards of living, government revenue increases

If industry declines unemployment will increase, overspecialisation, over exploitation of resources, negative externalities to the environment

Downward

Contraction

Expansion

Change in income, marketing, change in taste and fashion, substitutes, complementary goods, expectations of a change in price, population changes, government policies

Shifts to the right, price increases, quantity increases

Shifts to the left, price decreases, quantity falls

Percentage change in quantity/ percentage change in price

Perfectly inelastic

Inelastic

Unitary elastic

Elastic

Perfectly elastic

No change in quantity as price changes

Change in quantity is less than change in price

Change in quantity is equal to change in price

Change in quantity is more than change in price

An infinite amount can be demanded at a given price, no change in price

Perfectly inelastic

Inelastic

Unitary elastic

Elastic

Perfectly elastic

If a product has inelastic demand they are likely to face price rises and high taxes, allows them to make choices if substitutes available

Allows producers to maximise total revenue, affects their decision whether to supply the product or not

Upwards

Expansion

Contraction

Costs of production, taxes and subsidies, new technology, climate change, increase in producers/size of firms, government regulation

Shift to the right, prices fall, quantity increases

Shift to the left, prices rise, quantity decreases

Perfectly inelastic

Inelastic

Unitary elastic

Elastic

Perfectly elastic

Perfectly inelastic

Inelastic

Unitary elastic

Elastic

Perfectly elastic

If the product has inelastic supply they are likely to face high prices to obtain more, may not be able to get more of a product with very inelastic supply, if a product has elastic supply it is easy to purchase more

Firms would prefer elastic supply so it is easier to response to prices, elastic supply enables a firm to be more flexible, very inelastic supply means price will depend entirely on demand

Signalling, transmission of preferences, rationing

Price increases, quantity increases

Price decreases, quantity decreases

Price decreases, quantity increases

Price increases, quantity decreases

Price and non-price

To: enter a new market, survive in a market, make a profit.

Increased efficiency: costs cut, innovating, improving productivity

Lose consumers, replace workers with technology

Cheaper prices, improved quality of goods/services, innovation, increased consumer sovereignty

Innovations may be harmful, quality may fall, marketing may be dishonest

Able to set prices

Can influence price but is restrained by the reaction of rivals

Price is set by market forces

Higher price, lower quantity

Dependent on how strong competitors are

Lower price, greater quantity

Not seen as efficient but can be if they gain large economies of scale

Not seen as economically efficient

Efficient

Increase in employment, rise in standard of living, increase in profits, gain larger economies of scale, gain greater market share, economic growth

Workers replaced by machines, diseconomies of scale, other firms lose market share, environmental problems

Lower average costs, increased economies of scale, increased profits, increased output, increased exports

Unemployment, fall in GDP

Total fixed cost + total variable cost

Total cost/quantity

Price x quantity

Total revenue/total quantity

Total revenue- total cost

Division of labour, financial, increased dimensions, managerial, marketing, bulk buying, risk-bearing, research and development, technical

Concentration of firms, education and training facilities, location, transport

Lack of skills, geographical immobility, personal factors, information failure

Demand for products, wage rates, real wages, productivity of labour, profits of firms, state of the economy

Wage rate, other monetary payments, non-monetary payments, education and training, barriers to entry, size of working population

Issue bank notes, control monetary policy, manages foreign reserves, bank for the commercial banks, bank for the government

Accept deposits, make payments for customers, make payments by accepting cheques, issue loans, provide foreign currencies, offer safe deposit boxes

Help firms: in mergers and takeovers, underwriting share issues, with international trade.

Provide a limited range of services (mainly savings and mortgages), limited as to how much money can be borrowed from the money market

Can buy now and pay later

Can borrow money to expand

Can run a budget deficit or spend before taxes are collected

Can borrow to pay later

Banks will provide overdraft facilities so firms can continue trading while waiting for payments

Allows savers to spread their risk by putting their money into a range of companies

Reduces risk of not receiving payment on time