Why is there a problem of scarcity / what is the basic economic problem?
There are limited resources but unlimited needs and wants
What are the 3 economic questions?
- what to produce ?
- how to produce ?
- for whom to produce ?
What are the 3 different types of economies?
- centrally planned /command ( government decide on production and distribute it )
- free enterprise/ market ( buyers and sellers decide )
- mixed ( some government intervention )
What are the 4 economic agents?
- producers ( maximise profits )
- consumers ( maximise satisfaction )
- government ( maximise social welfare )
- workers ( maximise benefit of work )
What are the main 3 economic agents?
- producers
- consumers
- government
What are the economic agents all assumed to be ?
Rational
What is the law of diminishing marginal (additional) utility (satisfaction)?
To states that as the amount consumed of a commodity increases, the utility derived by the consumer decreases.
What is total utility?
The total satisfaction from a given level of consumption
What is marginal utility?
The change in satisfaction from consuming an extra unit
What does the marginal utility curve look like?
What does the total utility curve look like?
The demand curve
- Shows the amount of a product consumers would buy at different prices.
- it slopes downwards from left to right because the cheaper it becomes, the more people will buy
- a change in the price of a product causes a movement along the curve
Shifts in the demand curve
If a factor other than price changes there’s a shift :
- shift inwards (left) = decrease in demand
- shift outwards (right) = increase in demand
Factors that cause a shift in the demand curve:
- advertising
- income
- change in £ of substitute good
- change in £ of complimentary good
- population
The supply curve
- shows how much of a product producers will supply onto the market at each price
- a change in the price causes a movement along the curve
Shifts in the supply curve
- left = decrease in supply
- right = increase in supply
Causes in shifts in supply curve :
Costs of production : Natural factors: Technology
- wages - drought
- government - flood
- raw materials
- taxes
- subsidies
Equilibrium
- the equilibrium price is found where demand and supply curve meet
- at this point all of the product that is supplied onto the market will be purchased
- shifts in the demand and supply curves will change the equilibrium point and therefore change
the market price and quantity
Excess demand
Demand surplus
Derived demand
