What does the PPF curve show- production possibility frontiers
- Maximum possible products of 2 goods/services with given factors of production
- The various combination of 2 goods/services that can be produced with given factors of production.
What are the 3 types of efficiencies and what are they
Productive- on the ppf curve, goods are produced as low as possible
Allocative- what is being produced according to the consumer preferences
Pareto- the idea that someone can not be made better off, without someone being made worse off
What are the factors affecting demand PASIFIC
Population
Advertising
Substitute price
Income
Fashion/ tastes
Interest rates
Complementary price
Factors affecting supply PINTSWC
Productivity
Indirect taxes
Num of firms
Tech
Subsidies
Weather
Costs of production
What is a free market
Any place where buyers meet suppliers to exchange goods and services, free from government intervention
The 4 price mechanisms ARSI
- Allocative scarce resource
- Ration scarce resources by ec/disconmies of scale
- Signal excess demand/supply and need for more or less resources
- Incentivises producers to lower or increase output to increase revenue
What is competitive advantage for firms
When its products are deemed to be better than its competitors by customer
How can a firm gain competitive advantage
Price
Cost
Niche market
When does market failure occur
When the free market fails to allocate scarce resources at the socially optimum level of output.
What re the 9 causes of market failure
- negative externalities- self interest
- positve externalities- self interest
- de-merit goods- information failure
- merit goods- information failure
- public goods- free rider problem
- common access resources- self interest
- income inequality- inequity
- monoploy power-
- factor immobility-
What is a negative externality
cots of 3rd parties as a result of the production
What is a positive externality
benefits to 3rd parties as a result of the actions of consumers
What are merit goods
Goods deemed more beneficial to consumers than they realise
What are de-merit gods
Goods deemed more harmful to consumers than they realise
What are common access resources
Natural resources over which no private ownership has been established
What is government failure
When the dosts of intervention outweigh the benefits of intervention
What is the ending of government failure
Is worsening of the allocation of scarce resources harming social welfare
What are the 4 types of government faliure
- Info failure
- Admin+ enforcement costs very high
- Regulatory capture
when monopolies influence regulation - Unintended consequences
How can we solve price failures
- Indirect tax
- Subsidies
- Regulation
-Minimum/maximum price (price controls)
Pros of a free market
- Allocative efficiency
- Encourages competition
- Dynamic efficiency- investment
- Job creation and economic growth
- Freedom, liberty, choice
- No risk of GOV failure
Cons of a free market
- Markets can fail
- Inequity given inequality
- Excessive profiteering
- Creative destruction
- Price volatility
What is specialisation
The concentration of production of production on a narrow range of goods or services
Pros of specialisation
Higher output
Wider range of goods and services
Greater Allocative effciency
Higher productivity
Better quality
Cons of specialisation
Finite resources
Changes in fashion and tastes
De-indutrialisation
National interdependence
