Econ note for a level
-
Upload
teeheeteeheehahaha -
Category
Documents
-
view
216 -
download
0
Transcript of Econ note for a level
-
7/26/2019 Econ note for a level
1/43
EconomicsRevision Note
Tua 11SKMr.Phillpot Shrewsbury International School !1"!1#
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
2/43
Table o&'ontents
(asic Economic Problem 1
What are factors of production? 1
Type of goods 1
Opportunity Cost 1
Resources Allocation 1
The )llocation o& Resources1
3 Types of markets 1
Market Failure1
o! markets !ork? 1
"emand 1
#upply 1
$%uili&rium 1
Ta'(#u&sidies1
)rice $lasticity of "emand *)$d+ 1
)rice $lasticity of #upply *)$s+ 1
#ocial Costs and ,ene-ts 1
The In*ivi*ual as Pro*ucer+ 'onsumer+(orrower 1
Money 1
Financial .nstitute 1
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
3/43
Central ,ank /
Occupation /
#peciali0ation /
Trade nions /
#pending2 #aing2 ,orro!ing/
The Private ,rm as Pro*ucer an* Employer
Types of ,usiness Organi0ation /
#ector of )roduction /
Cost /
Firms 4ro!th /
$conomies of #cale /
Competition /
The Role o& -overnment in an Economy
Macro $conomics /
Fiscal )olicy /
Monetary )olicy /
Ta' /
"isposa&le .ncome /
Economics In*icator
.n5ation /
Types of .n5ation /
nemployment /
Output and 4ro!th /
The $conomic Cycle /
evelope* an* evelopin/ Economies
"eeloped and 6ess "eeloped $conomies/
)opulation /
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
4/43
(asic Economic
Problem0hat are &actors o& pro*uction
2an*" all natural resources use* in pro*uction
2abour" pro*uction e3ort pro*uct by people
'apital" human ma*e resources use* in pro*uction li4e tools+
machinery+ buil*in/s.
Entrepreneur" Person who mana/e ,rm to pro*uce /oo*s or services
Type o& /oo*s
urable consumer /oo*s" /oo* that can be use &or a lon/ type li4e
cars+ computers.
Non"*urable consumer /oo*s" /oo*s that are use* up 5uic4ly such
as &oo*+ *rin4 an* cosmetic.
'onsumer services" personal services li4e hair *ressin/+ *entistry.
'apital /oo*s" /oo*s that are use* by ,rms to pro*uce other /oo*s
an* services. E/. Shop+ o6ce an* &actory.
Semi"7inishe* /oo*s" /oo*s that are use* to ma4e other /oo*s or
services e./.. material.
8pportunity 'ost
) *ecision to use resources one way is the bene,t &ore/one &rom
their ne9t best or hi/hest value* alternative use.7or e9ample+
instea* o& *oin/ economics revision note I coul* be preparin/ &or my
mathematics+ '1 e9am.
Tua 11SK Sub$ect%Economics Shrewsbury International School#
-
7/26/2019 Econ note for a level
5/43
Resources )llocation
'hoosin/ how best to use scarce resources. 7or e9ample+ allocatin/
more pro*uctive resources to the pro*uction+ military e5uipment will
mean &ewer resources are available to pro*uce cars.
The )llocation o&Resources
# Types o& mar4ets7ree mar4et economy are economy where there is no role o&
/overnment an* there&ore no ta9es or /overnment spen*in/.
:owever+ in reality+ all mar4et economies have a /overnment that
will also *eci*e* how best to allocate some scarce resources.
Mi9e* mar4et economy are mar4et that consist between both private
an* public sector. The amount o& /oo*s an* services provi*e* by the
public sector can vary /reatly between *i3erent national economies.
Planne* economy is economy where /overnment owne* or
controlle* the vast ma$ority o& scare resources an* *etermine* what+
how an* &or whom /oo*s an* serves were pro*uce*. There were no
private ,rms in these economies many years a/o an* very little
consumer choice.
Mar4etEconomy
Mi9e*Economy
Planne*Economy
0ho *eci*e*
what an* how
to pro*uce
Pro*uces an*
consumers
Pro*ucer+
consumers an*
/overnment
-overnment
Tua 11SK Sub$ect%Economics Shrewsbury International School;
-
7/26/2019 Econ note for a level
6/43
Mar4etEconomy
Mi9e*Economy
Planne*Economy
0ho owns or
controls most
scarce
resources
Private Sector Private an*
Public Sector
-overnment
:ow are
resources
allocation
*ecision ma*e
7irms use*
mar4et price
si/nals to 4now
what /oo*san* services
consumers
want an* will
ma4e pro,t+
Same as
mar4et
economy but
the/overnment
also provi*es
some /oo*s
an* services to
those in
/reatest nee*.
-overnment
will pro*uce
&rom what they
thin4 themar4et nee*.
0ho are /oo*s
an* services
&or
'onsumers
with the
/reatest ability
to pay &or them
Same as
mar4et
economy but
the
/overnment
also provi*es
some /oo*s
an* services to
those in
/reatest nee*.
7or everyone in
the mar4et
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
7/43
Mar4etEconomy
Mi9e*Economy
Planne*Economy
Main
a*vanta/es
=ariety o&
/oo*s an*
services
available
Same as
mar4et
economy.
Everybo*y will
/et the same
amount o&
/oo*s an*
services an*
will create
e5uality.
Main*isa*vanta/es
:arm&ul /oo*swill be
available to
buy
Same asmar4et
economy but
/overnment
can intervene.
No choice o&/oo*s an*
services to
choose.
Mar4et 7ailure
Mar4et &ailure occurs when mar4ets &ail to pro*uce /oo*s an*
services that are worthwhile an* when mar4ets result in waste&ul or
harm&ul activities. (ut in mi9e* economy /overnment can come in
an intervene in the mar4ets+ they can or/ani>e resources to provi*e
/oo*s an* services an* create law to control harm&ul activities.
Tua 11SK Sub$ect%Economics Shrewsbury International School?
-
7/26/2019 Econ note for a level
8/43
:ow mar4ets can &ail :ow a /overnment canintervene
8nly /oo*s an* services that
are pro,table to ma4e will be
provi*e*. 7or e9ample+ a
mar4et economy will not
provi*e e*ucation or health
care &or people who cannot
a3or* to pay &or these
services.
It can pro*uces merits /oo*s
such as e*ucation an* health
care &or people+ re/ar*less o&
their ability to pay &or them+
because all the economy will
bene,t &rom havin/ a health
an* e*ucate* population.
8ther services such as street
li/htin/+ sea an* @oo*
re&erences an* national
par4s+ will not be provi*e*%
,rms woul* be unable to
char/e customers a price
accor*in/ to how much they
use them or bene,t them.
It can provi*e public /oo*s+
such as street li/htin/+ sea
an* @oo* *e&enses an*
national par4s+ that woul*
otherwise be unpro,table &or
private sector ,rm to provi*e.
:arm&ul /oo*s+ such as
*an/erous *ru/s an*
weapons+ may be pro*uce*
an* be &reely available to
consumers who want to buy
them.
2aws can ma4e the pro*uction
o& harm&ul /oo*s ille/al+ an*
hi/h ta9es can be put on
speci,c items such as alcohol
an* ci/arettes to re*uce the
consumption.
Resources will only be
employe* i& it is pro,table to
*o so. Some people who are
willin/ an* able to wor4 may
be le&t unemploye* an*
without an income.
The public sector can employ
people who otherwise be
unemploye* an* provi*e
wel&are bene,ts an*
payments to people out o&
wor4 or on low incomes.
Tua 11SK Sub$ect%Economics Shrewsbury International SchoolA
-
7/26/2019 Econ note for a level
9/43
:ow mar4ets can &ail :ow a /overnment canintervene
Some pro*ucers may i/nore
the harm&ul e3ects o& their
pro*uction on the
environment or peopleBs
health.
2aws an* re/ulations can
protect the natural
environment an* peopleBs
health an* sa&ety. 7irms may
have to pay lar/e ,nes i& their
activities brea4 these laws.
Some ,rms may be *ominate
the supply o& a particular/oo* an* service an* will
char/e consumers very hi/h
prices. These ,rms are
*escribe* as monopolies.
Monopolies can be re/ulate*
to 4eep their prices *own orbe bro4en up into smaller
,rms to increase competition
an* choice.
:ow mar4ets wor4
In the mar4et their is *eman* an* supply. E3ective *eman* are
*eman* that consumers willin/ an* able to but that particular
pro*uct. There are some pro*ucts that are compliment to other
pro*ucts we call these $oint *eman*.
eman*The amount that an in*ivi*ual or in*ivi*uals are willin/ to buy at any/iven price. )s price rises *eman* *ecrease.It is possible that *eman*may chan/e &or reasons other than price
EM)N IN'RE)SES I7 CThai )irwaysD
1. The /oo* or service becomes more popular
. Increase in a*vertisin/ on the /oo* or service
#. 8ther substitute /oo*s Ce./. Sin/apore )irlineD increase in price
;. Improvement in 5uality
-
7/26/2019 Econ note for a level
10/43
-
7/26/2019 Econ note for a level
11/43
E5uilibrium
(oth *eman* an* supply when they are e5ual the mar4et will reach
the point call E5uilibrium but when it *oesnBt e5ual to each other it is
calle* ise5uilibrium.
0hen there is e9cess *eman* the price nee* to increase to brin/ the
*eman* &or that /oo*s or services *own.
0hen there is e9cess supply the price nee* to *ecrease to brin/ up
the *eman* to reach e5uilibrium.
Tua 11SK Sub$ect%Economics Shrewsbury International School1!
-
7/26/2019 Econ note for a level
12/43
Ta9JSubsi*ies
Ta9 on /oo*s an* services will increase the price o& that /oo*s or
services. This will result in shi&tin/ the supply curve inwar* because
it is more e9pensive to pro*uce so pro*ucer are li4ely to supply less.
Subsi*y will be a a*vanta/e or money that is /iven to a certain ,rm
by /overnment to encoura/e them to pro*uce more /oo*s an*
services. This will re*uce their cost o& pro*uction an* they will li4ely
to supply more.
Tua 11SK Sub$ect%Economics Shrewsbury International School11
-
7/26/2019 Econ note for a level
13/43
Price Elasticity o& eman* CPE*D
PE* measures the responsiveness o& *eman* o& a chan/e in price.
PE* L chan/e in 5uantity *eman*H L chan/e in price
I& PE* is /reater than 1 it is elastic but lass than one is is in elastic.
I& PE*! it is calle* per&ectly price in elastic+ *eman* remain
constant at whatever price.
I& PE* it is calle* In,nitely price
inelastic+ there is unlimite* *eman*
but only at one price.
I& PE*1 it is calle* Fnitary elastic+ revenue
remains constant at every possible price.
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
14/43
Price Elasticity o& Supply CPEsD
PEs measures the responsiveness o& supply o& a chan/e in price.
PEs L chan/e in 5uantity supplyH L chan/e in price
I& PEs is /reater than 1 it is elastic but lass than one is is in inelastic.
Social 'osts an* (ene,ts
E9ternal 'ost" 0hen the economic activities o& one /roup have a
ne/ative impact on others an* when that impact is not ta4en into
account or pai* &or by those creatin/ it.
E9ternal (ene,t" 0hen the economic activities o& one /roup have a
positive impact on others an* an* that impact is not ta4en into
account or pai* by those who bene,t.
Social 'ost""The total economic cost o& an activity to a society+
inclu*in/ private costs incurre* by ,rms an* consumers un*erta4in/
the activity an* e9ternal costs a3ectin/ those not *irectly involve* in
the activity.
Social (ene,t" The total economic bene,t o& an activity to a society+
is the sum o& its private bene,ts an* e9ternal bene,ts.
-overnment can use Ta9es+ subsi*es an* 2aws an* re/ulation to
control e9ternal costs an* bene,ts.
Tua 11SK Sub$ect%Economics Shrewsbury International School1#
-
7/26/2019 Econ note for a level
15/43
The In*ivi*ual as
Pro*ucer+'onsumer+(orrower
Money
7unctions o& Money
) wi*ely accepte* me*ium o& e9chan/e
) reliable measure o& value
) /oo* store o& value
) means o& *e&erre* payment
'haracteristics o& a /oo* money
)cceptable
urable
Portable
ivisible
Scarce
Type o& Money
'ash+ 7inancial )ssets+ (an/ eposits+ Physical )ssets
Tua 11SK Sub$ect%Economics Shrewsbury International School1;
-
7/26/2019 Econ note for a level
16/43
7inancial Institute
'ommercial (an4+ 're*it Fnions+ Investment (an4+ Islamic (an4sCno
interest rate but char/es &eesD
Their services%
1. Keep money sa&ely &or customers
. :elp customers ma4e payments Cthrou/h che5ues an* car*sD
#. 2en* money to customers
;. Sell other pro*ucts e./. insurance+ share *ealin/.
'entral (an4
Issuin/ new notes an* coins &or the nationBs currency
Mana/in/ payments to an* &rom the /overnmentBs account
Stabili>in/ the value o& the national currency on the &orei/ne9chan/e mar4et.
Mana/in/ the stoc4 o& /overnment borrowin/CThe national
*ebtD
Supervisin/ the ban4in/ system+ re/ulatin/ the con*uct o&
ban4s+ hol*in/ their *eposits an* trans&errin/ &un*s between them.
2en*er o& last resortO or len*in/ money to ban4s to preventthem /oin/ ban4rupt i& they run short o& money.
8peratin/ the /overnment monetary policy.
8ccupation
Most people supply their labour to earn an income. They choose
*i3erent $obs or occupations *epen*in/ on the wa/e or salary they
o3er an* also *epen*in/ on non"wa/e &actors.
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
17/43
Non"wa/e &actors inclu*e%
:ours o& wor4 7le9ible wor4in/
arran/ements
:oli*ay Entitlement -oo* wor4in/
environment
Promotion prospects istance or travel time to
wor4
Trainin/ provision :ow secure the $ob is
Pension entitlement access to a company at
Speciali>ation
)*vanta/es isa*vanta/es
Employees can ma4e best use
their particular talents an* s4ills
oin/ the same $ob or repetitive
tas4s can become borin/ an*
stress&ul
Employees can increase their
s4ills an* e9perience by
repeatin/ tas4s.
In*ivi*uals must rely on others
to pro*uce /oo*s an* services
they want but cannot pro*uce
themselves
Employees can pro*uce more
output an* re*uce business
costs i& they concentrate on the
same $ob or tas4s.
Many repetitive manual tas4s
can now be un*erta4en by
computer"controlle* machinery
an* robots. This has le* to many
low s4ille* wor4ers bein/ ma*e
unemploye*
Tua 11SK Sub$ect%Economics Shrewsbury International School1?
-
7/26/2019 Econ note for a level
18/43
)*vanta/es isa*vanta/es
More pro*uctive employees can
earn hi/her wa/es.
Tra*e Fnions
)IMS 87 TR)E FNI8NS
To increase the wa/es o& their members
To improve their wor4in/ con*itions
To a/ree a certain number o& hours to be wor4e* each wee4
To support members who have problems with mana/ers
To /et e9tra bene,ts &or wor4ers e./. pensions
:80 8 T:EG -8 )(8FT IT
" Ne/otiations with mana/ers i.e. /eneral *iscussions
" In*ustrial action e./. stri4e
" :elp an* pay to represent wor4ers in court or le/al battles
)*vanta/es an* isa*vanta/es o& stri4e
)*vanta/e
" :as an imme*iate e3ect as pro*uction halts e./. trains stoprunnin/ i& the *rivers stri4e
" (usinesses su3er an* have to ta4e notice
" May /et covera/e on T= or in newspapers.
is)*vanta/e
" May cause an/er &rom the /eneral public e./. train passen/ers
" 0or4ers *onBt /et pai* when on stri4e
" Notice has to be /iven otherwise it is ille/al
8verall the e3ect will probably *epen* upon%
Tua 11SK Sub$ect%Economics Shrewsbury International School1A
-
7/26/2019 Econ note for a level
19/43
- The L o& the wor4&orce willin/ to stri4e
" The support o& the /eneral public
" The stren/th o& the mana/ement to battle it out
Spen*in/+ Savin/+ (orrowin/
isposable Income" The amount o& income a person has le&t to spen*
a&ter *e*ucte* by income ta9.
People save money to use in their &uture+ more people ten* to save
more when the interest rate is hi/her because they will /et more
money i& they save.
People borrow money to buy thin/s or to pay &or thin/s when they*onBt have enou/h money+ people ten* to borrow more money when
the interest rate is low because they will have to pay bac4 cheaper
to their len*er.
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
20/43
The Private ,rm as
Pro*ucer an*Employer
Types o& (usiness 8r/ani>ation
) Sole Tra*er" ) business owne* an* controlle* by one person
) Partnership" )n a/reement between a /roup o& people to run a
business an* share pro,ts.
Sole tra*ers an* /eneral partners in a partnerships have an
unlimite* liability to repay any business *ebts that their business
&ail.
Private 2imite* 'ompany" can only sell shares to people
recommen*e* by e9istin/ owners.
Public 2imite* 'ompany" can shares publicly on the stoc4 mar4et
sharehol*ers in a limite* company will elect a boar* o& *irectors to
mana/e their business.
Sharehol*ers in a limite* company have limite* liability an* will only
lose the money they investe* in their business i& it &ails.
Multinational" ) /lobal corporation with business operations in more
than one country.
Public 'ompany" Responsible &or runnin/ a business or/ani>ation
owne* by an* accountable to /overnment.
Sector o& Pro*uction
Primary Sector" &armin/+ minin/+ pro*uces natural resources.
Secon*ary" inclu*e all manu&acturin/ in*ustries an* construction.
Tertiary" Pro*uce an* supply service.
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
21/43
2abour Intensive" 8r/ani>ation will employ more labour than capital
e5uipment an* machinery.
'apital Intensive" 8r/ani>ation will employ more capital e5uipment
an* machinery an* relatively &ew wor4ers.
Pro*uctivity"" Measures the amount o& output or revenue pro*uce*
by a /iven amount o& labour+ capital an*Hor materials. Pro*uctivity
will increase* i&% more output or revenue is pro*uce* &rom the same
amount o& resources+ the same output or revenue can be pro*uce*
usin/ &ewer resources.
'ost
7i9e* 'osts =ariable 'ost
'osts that *o not vary with the
level o& output
'osts that vary with the level o&
output.
Rent Purchase o& materials
2oan repayment Purchase o& component parts
'leanin/ Electric
Insurances 0a/e
Total 7i9e* 'ost the sum o& all ,9e* costs
Total =ariable 'ost variable cost output
Total 'ost Total ,9e* cost Q Total variable cost
)vera/e 'ost per Fnit o& 8utput total costHtotal output
)vera/e costs ten* to &all as output rises because ,9e* costs are
sprea* over a lar/er output.
Total Revenue " price per unit 5uantity sol*
Tua 11SK Sub$ect%Economics Shrewsbury International School!
-
7/26/2019 Econ note for a level
22/43
)vera/e revenue per unit sol* total revenueH5uantity sol*
Total Revenue " Total 'ost 8 (rea4"even
7irms -rowth
Internal -rowth
This means that it /rows without $oinin/ with another business. It
coul*
buil* new premises
ta4e onB more employees
E9ternal -rowth
In this case it has some involvement with another business
Mer/er
Two ,rms $oin to/ether an* have e5ual ownership e./. 2loy*s an*
TS( mer/e to create 2loy*s TS( ban4.
:ori>ontal Inte/ration
Two businesses at the same sta/e o& pro*uction
e./. table"ma4ers $oin to/ether
7orwar* =ertical Inte/ration
Tua 11SK Sub$ect%Economics Shrewsbury International School1
-
7/26/2019 Econ note for a level
23/43
) business ta4es over or mer/es with a businesses at the ne9t sta/e
o& pro*uction
e./. table ma4er $oins with a shop
(ac4war* =ertical Inte/ration
) business ta4es over or mer/es with a business at the previous
sta/e o& pro*uction
e./. a table ma4er $oins with a tree cutter
Ta4eover
8ne ,rm ta4es over another ,rm an* has the ownership o& that
business. It is probably a/ainst the wishes o& the other business. e./.
2loy*s coul* ta4eover TS(. It woul* probably still be calle* 2loy*s
but it woul* also own TS(.
(ene,ts o& -rowth
Increase* pro,ts
Increase* mar4et share
-ain new i*eas &rom the other business
)voi* havin/ to compete with the other business
-ain &rom economies o& scale Cpa/eD
The new business may not nee* all o& the wor4ers. They coul*
remove some wor4ers to become e6cient an* ma4e more pro,t
Problems o& -rowth
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
24/43
To the businesses
There may be two sets o& mana/ers who are unable to a/ree on
the best *irection &or the company. This coul* cause many problems.
The businesses may have *i3erent ob$ectives an* tar/ets
It costs a lot o& money to mer/e with or ta4eover another business
To customers
Possibly less choice in the mar4et an* possibly hi/her prices to pay
To wor4ers
Possible $ob losses an* $ob insecurity
Economies o& Scale
The bene,ts /aine* &rom pro*ucin/ on a lar/e scale. It usually
means that the avera/e cost o& ma4in/ a /oo* is lowere*.
E9ample
I& a shirt manu&acturer in (an/4o4 pro*uce* more shirts it shoul* see
a &all in its avera/e costs per shirt. I& it only pro*uces 1 shirt it still
has to pay its rent+ mana/ers+ bills etc.
Number of shirt Total Cost () Average Cost1 1,000 1,000
100 30,000 300
1,000 100,000 100
Tua 11SK Sub$ect%Economics Shrewsbury International School#
-
7/26/2019 Econ note for a level
25/43
)s a number o& the costs are ,9e* it is bene,cial to pro*uce on a
lar/er scale.
This means the ,rm can either aD re*uce its price or bD 4eep the
same price an* ma4e more pro,t
Types o& Economies o& Scale
Thin4 o& the a*vanta/es that :arro*s has over a small+
in*epen*ently"owne* shoppin/ centre near you
M)N)-ERI)2 Employ specialist mana/ers e./. accountants.
7IN)N'I)2 Easier to /et a loan &rom the ban4
I=ERSI7G Sell a ran/e o& pro*ucts. Re*uces the ris4 o& &ailure.
)=ERTISIN- They can a3or* to a*vertise nationally on T=
(F2K (FGIN- This is cheaper per /oo* &or the business
M)SS PR8F'TI8N :elps sprea* ,9e* costs Cpa/eD
iseconomies o& Scale
These are the problems &ace* by businesses i& they become too
lar/e
2ose touch with the customers
Mana/ers lose touch with the wor4ers
'ommunication problems because the business is so lar/e
'ompetition
Types o& 'ompetition
Price 'ompetition" involves ,rms usin/ price strate/ies to attract
customers &rom rival pro*ucers.
Tua 11SK Sub$ect%Economics Shrewsbury International School;
-
7/26/2019 Econ note for a level
26/43
Non"Price 'ompetition" inclu*es o3erin/ better 5uality pro*ucts than
rival ,rms+ improvin/ customer services+ &ree /i&ts with purchases or
by usin/ persuasive a*vertisement.
Pricin/ Strate/y escription
Penetratin/ pricin/ Settin/ price low to encoura/e sales. This
maybe important &or a new ,rm or an
e9istin/ ,rm tryin/ to attract *eman* &or a
new pro*uct.
E9pansion pricin/ Settin/ price low to e9pan* *eman* &or an
e9istin/ pro*uct. )s *eman* rises+ ,rms can
increase their scale o& pro*uction an* re*uce
avera/e costs.
Mar4et s4immin/ Initially char/in/ at hi/h price &or a new
pro*uct to ma9imi>e pro,t &rom those
consumers willin/ to pay more to be amon/
the ,rst to buy the pro*uct. This strate/y iso&ten observe* in the mar4et &or new
consumer electronic /oo*s.
Price 2ea*ership 0hen smaller ,rms set their prices at a
similar level to a lar/er ,rm. This can help
avoi* a//ressive price competition an* price
wars with lar/er ,rms.
Pre*atory pricin/ )//ressive price cuttin/ by a lar/e *ominant
,rm inten*e* to *rive smaller competin/
,rms out o& business because they have
hi/her costs an* will be unable to match the
price cuts. 8nce the competition has been
remove* the lar/e ,rm is able to raise prices
a/ain.
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
27/43
:ow can we measure competition &or a particular /oo* or service
I. Mar4et share o& total 5uantity tra*e* or total sales revenues
II. o ,rms able to to in@uence mar4et price as 4now as price
ma4ers.
8li/opoly Pure Monopoly
0hen a smaller number o& ,rms
*ominate the mar4et supply o& a/oo* or service.
To avoi* price wars ,rms may
act to/ether to ma9imi>e their
pro,ts+ settin/ mar4et price hi/h
by restrictin/ their combine*
mar4et supply+ This is calle*
price collusion.
) cartel is a &ormal a/reement
between ,rms to control mar4et
supply or price.
They may create barriers to
mar4et entry to/ether to *eter
competition &rom new ,rms.
) ,rm that controls the entire
mar4et supply o& a /oo* orservice.
) monopoly may use pre*atory
pricin/ an* other arti,cial
barriers to entry to &orce
competin/ ,rms out o& their
mar4et.
8ther ,rms may also be
*eterre* &rom competin/ with a
monopoly because they will be
unable to match its si>e in terms
o& its capital employe* an*H or
mar4et share.
2ar/e ,rms may abuse their mar4et power by restrictin/ mar4et
supply to &orce up the mar4et price an* earn more pro,t. These are
calle* abnormal pro,t or e9cess pro,ts because they will be much
hi/her than they woul* be i& the mar4et was competitive.
8li/opolies an* Monopolies isa*vanta/es%
:i/her price than competitive mar4et because they can push
up the price.
Tua 11SK Sub$ect%Economics Shrewsbury International School?
-
7/26/2019 Econ note for a level
28/43
2ess choice &or consumer
2ower pro*uct 5uality
"ine6ciency+ hi/her pro*uction costs because poorly
mana/e*+ ue to no competition so less incentive to re*uce costs.
-overnment can use laws an* re/ulations to prevent restrictive
practices to *eter competition.
Tua 11SK Sub$ect%Economics Shrewsbury International SchoolA
-
7/26/2019 Econ note for a level
29/43
The Role o&
-overnment in anEconomy
Macro Economics
8b$ective o& /overnment%
2ow an* stable price in@ation
) hi/h an* stable level o& employment
Economic /rowth an* prosperity
) &avorable balance o& international payment
Economics -rowth
This is measure* by the yearly chan/e in -ross omestic Pro*uct
C-PD. It is usually e9presse* as a L chan/e.
E9ample Gear 1 Tinseltown pro*uces 1+!!! worth o& /oo*s
Gear Tinseltown pro*uces 1+1!! worth o& /oo*s
Economic /rowth woul* be 1!L
It C-PD can be measure* in # ways. Each is i*entical
The total pro*uction CoutputD o& all businesses
The total incomes an* pro,ts in the country
The total o& all spen*in/ by in*ivi*uals an* businesses
0hat causes economic /rowth
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
30/43
)nythin/ which allows the country to pro*uce more /oo*s an*
services.
More business investment (etter pro*uctivity
(etter machinery Improve* trainin/
(etter s4ills New technolo/y
New i*eas Increase* e6ciency
'osts an* bene,ts o& economic /rowth
(ene,ts% More income &or society+ Shoul* create $obs+ 'oul* re*uce
the number o& poor people+ More /oo*s pro*uce* an* probably more
choice &or customers an* businesses+ :i/her stan*ar* o& livin/+ 7ree
/oo* &actor in society
'osts% E9tra pro*uction coul* cause e9tra pollution+ E9haustion o&
non renewable resources li4e oil+ 8nly the rich may /ain the bene,ts
The poor stay poor an* ine5uality increases+ -reater stress on
wor4ers to pro*uce more /oo*s
)**in/ the circular @ow an* the economic activity
" (usinesses may invest money into new e5uipment or new
&actories. This allows e9tra pro*uction to ta4e place.
" The -overnment may spen* 1!! on a roa*buil*in/ pro$ect. This
creates economic activity
" )n e9port is a sale o& a /oo* or service to a &orei/ner. This brin/s
money into the economy.
2owerin/ the circular @ow an* the economic activity
Savin/s mean that people are not spen*in/ money on /oo*s an*
services
Ta9es are ta4en out o& peoples an* businesses incomes. This money
cannot be spent on /oo*s an* services.
Tua 11SK Sub$ect%Economics Shrewsbury International School
-
7/26/2019 Econ note for a level
31/43
Imports are purchases &rom abroa*. The money leaves the country
The economy ten*s to e9perience *i3erent tren*s. These can be
cate/ori>e* as the tra*e cycle an* may &eature boom+ slump+
recession an* recovery
(88M% ) perio* o& &ast economic /rowth. 8utput is hi/h *ue to
increase* *eman*+ unemployment is low. (usiness con,*ence may
be hi/h lea*in/ to increase* investment. 'onsumer con,*ence may
lea* to e9tra spen*in/.
S2FMP% ) perio* when output slows *own *ue to a re*uction in
*eman*. 'on,*ence may be/in to su3er.
RE'ESSI8N% ) perio* where economic /rowth slows *own an* the
level o& output may actually *ecrease. Fnemployment is li4ely to
increase. 7irms may lose con,*ence an* re*uce investment.
In*ivi*uals may save rather than spen*.
RE'8=ERG% ) perio* when the economy moves between recession
an* a boom.
0:)T :)PPENS IN ) (88M
" (usinesses pro*uce more /oo*s
" (usinesses invest in more machinery
" 'onsumers spen* more money.
" 2ess money is spent by the -overnment on unemployment bene,ts
" More money is collecte* by the -overnment in income ta9 an* =)T
" Prices ten* to increase *ue to e9tra *eman* Cpa/eD
0:)T :)PPENS IN ) RE'ESSI8N
- (usinesses cut bac4 on pro*uction
" Some businesses may /o ban4rupt
Tua 11SK Sub$ect%Economics Shrewsbury International School#!
-
7/26/2019 Econ note for a level
32/43
" 'onsumers spen* less money. " In*ivi*uals may lose their $obs
" More money is spent by the -overnment on unemployment
bene,ts
" 2ess money is collecte* by the -overnment in income ta9 an* =)T
" Prices start to &all
7iscal Policy
7iscal Policy" involves varyin/ total public sector e9pen*iture an*Hor
the overall level o& ta9ation to in@uence the level o& *eman* in an
economy.
E9pansionary 7iscal Policy" may be use* *urin/ an economic
recession to boost *eman* &or /oo*s an* services throu/h ta9 cuts
or increase* public sector spen*in/. 7irms may respon* by hirin/
more labour an* increasin/ output. :owever+ increasin/ *eman* can
&orce up mar4et prices an* involve spen*in/ more on importe*
/oo*s an* services &rom overseas. Increasin/ imports will have
ne/ative impact on the balance o& payments.
'ontractionary 7iscal Policy " may be use* to re*uce price in@ation. It
involves re*ucin/ *eman* in an economy throu/h ta9 increases or
cuts in public sector spen*in/. :owever+ ,rms may respon* to &allin/
*eman* by cuttin/ their output an* re*ucin/ employment. Increase*
ta9es may also re*uce wor4 incentives an* there&ore pro*uctivity.
7iscalPolicy
Instruments
Impacts on consumers Impacts on pro*ucers
Increase
income
ta9es
isposable income is
re*uce* an* consumer
spen*in/ &alls
M)r4et prices an* pro,ts
&all as consumer *eman*
&alls. 7irms cut output an*
employment.
Tua 11SK Sub$ect%Economics Shrewsbury International School#1
-
7/26/2019 Econ note for a level
33/43
7iscalPolicy
Instruments
Impacts on consumers Impacts on pro*ucers
Re*uce
income
ta9es
isposable income is
re*uce* an* consumer
spen*in/ rise
Mar4et prices an* pro,ts
start to rise so &orms
e9pan* output an* employ
more labour.
Increase
ta9es on
pro,ts
'onsumers are not
*irectly a3ecte* but
may pay hi/her prices i&
,rms cut output
)&ter ta9 pro,ts &all. 7irms
may increase their prices
an*Hor cut output in
response.
'ut ta9es
on pro,ts
'onsumers may be
bene,t re*uce* prices
as output rises
)&ter ta9 pro,ts rise so
,rms may e9pan* their
output an* employment
Increase
in*irect
ta9es on
/oo*s an*
services
'onsumers on low
incomes may be hit
har*est by price rises
because they spen* all
or most o& their incomes
'onsumer *eman* may
contact an* pro,ts &all.
7irms may cut output an*
re*uce their *eman* &or
labour.
'ut in*irect
ta9es on
/oo*s an*
services
'onsumers may e9pan*
their *eman* &or /oo*s
an* services as a&ter ta9
prices &all
E9pan*in/ *eman* will
boost pro,ts which are an
incentive to ,rms to raise
their output an* *eman*
more labour
Tua 11SK Sub$ect%Economics Shrewsbury International School#
-
7/26/2019 Econ note for a level
34/43
7iscalPolicy
Instruments
Impacts on consumers Impacts on pro*ucers
Raise
public
e9pen*itur
e
Public sector wor4ers
coul* be pai* more. 2ow
income &amilies may
receive more bene,ts.
More public services
coul* be provi*e* &or
&ree
7irms supply /oo*s an*
services to /overnment will
en$oy increase* revenues
an* pro,ts+ an* may
e9pan* their output an*
employment.
'ut public
e9pen*itur
e
Public sector wor4ers
coul* su3er pay cuts or
be ma*e unemploye*.
0el&are bene,ts may be
re*uce*.
) cut in public spen*in/ on
capital pro$ects+ such as
roa* an* school buil*in/+
will cause cutbac4s in the
construction in*ustry.
Subsi*es pai* to other
,rms may be cut.
Monetary Policy
Monetary Policy" involves varyin/ interest rate char/e* by the
central ban4 &or len*in/ money to the ban4in/ system in an
economy.
'ontractionary Monetary Policy" may be use* to re*uce price
in@ation by increasin/ the interest rate.
E9pansionary Monetary Policy"" may be use* *urin/ an economic
recession to boost *eman* an* employment by cuttin/ interest
rates. :owever+ increasin/ *eman* can push up prices an* may
increase consumer spen*in/ on importe* /oo*s an* services.
Tua 11SK Sub$ect%Economics Shrewsbury International School##
-
7/26/2019 Econ note for a level
35/43
Ta9
Ta9ation is money pai* to the -overnment by in*ivi*uals an*
businesses. This money is usually spent by the -overnment on
essential services such as health or e*ucation.
Types o& Ta9
irect Ta9
) ta9 place* *irectly on an in*ivi*ual or business
" Income ta9 " ta4en out o& an in*ivi*uals wa/e
" 'orporation ta9 " pai* by businesses out o& their pro,ts
" National Insurance U ta4en out o& an in*ivi*uals wa/e
In*irect Ta9
) ta9 place* on a /oo* or service
" =)T " this is put onto the price o& most /oo*s an* services+ usually
1A.
-
7/26/2019 Econ note for a level
36/43
) ta9 where hi/her income earners pay a lower percenta/e o& their
income in ta9 compare* to low income earners
isposable Income
The amount o& money an in*ivi*ual earns a&ter ta4in/ away ta9 an*
national insurance payments.
:ow is it a3ecte* by ta9
Scene 1% Ta9 is hi/h
Pay"slip o& Tua
-ross pay
Income ta9 !L 1!!
National insurance
-
7/26/2019 Econ note for a level
37/43
There shoul* be lots more spen*in/ in the economy
This shoul* help businesses sell more /oo*s
They may ta4e on more wor4ers V.. this woul* re*uce
unemployment
Economics In*icator
In@ation
It is a sustaine* rise in the /eneral level o& prices in an economy. It
can easily be measure* by 'PI C'onsumer Price In*e9D.
This means an increase in the avera/e price level over a year. e./.
on avera/e prices may increase by
-
7/26/2019 Econ note for a level
38/43
Problems o& in@ation
Prices increase there&ore people may buy &ewer /oo*s+ the
economy may su3er
People nee* to 4eep as4in/ &or pay increases to match price rises.This can cause problems at wor4
I& people are on ,9e* incomes e./. pensioners or stu*ents. They
will be worse o3 because they will be able to buy &ewer /oo*s
The costs to businesses may increase. They may cutbac4 on
pro*uction.
I& the prices o& FK /oo*s increase too much then people an*
businesses may start to import more /oo*s &rom abroa* because
they are cheaper. This will cause ma$or problems &or the economy.
'auses o& in@ation
'ost"Push
)n increase in costs may lea* to an increase in prices.
E9amples%
Raw material prices C possibly &rom abroa*D increase...
...'osts to business increase...
...(usiness still wants to ma4e a pro,t...
...(usiness puts its prices up...
...'onsumers can buy less with their money...
...0or4ers *eman* an* receive pay increases...
...(usinesses costs increase a/ain...
...(usinesses put prices up a/ain
Tua 11SK Sub$ect%Economics Shrewsbury International School#A
-
7/26/2019 Econ note for a level
39/43
8n an* on an* on
eman*"Pull
I& there is too much *eman* &or /oo*s an* services in the economy
then prices may be &orce* upwar*s.
In*ivi*uals an* businesses e9perience a &eel /oo* &actor Cmaybe
they have $ust ha* a ta9 cutD
They wish to buy more /oo*s an* services
8nly so many /oo*s an* services are available at present
Suppliers e9perience so much *eman* &or their limite* number o&
/oo*s that they *eci*e to put up prices.
:ow to re*uce in@ation
I& in@ation is cause* by hi/h *eman* then
Raise interest rates to re*uce consumers *isposable incomes
Raise interest rates to *iscoura/e borrowin/ an* *eman*
Raise ta9es to re*uce *isposable income an* spen*in/
These policies shoul* all re*uce peoples ability to spen* too much
money
I& in@ation is cause* by hi/h costs
2imit wa/e increases i& possible e./. public sector wor4ers
7orce electricity an* /as companies to hol* their prices
Increase the value o& in or*er to re*uce the cost o& importin/
I& in@ation is cause* by too much money in the economy
Print less money
Tua 11SK Sub$ect%Economics Shrewsbury International School#
-
7/26/2019 Econ note for a level
40/43
0ith*raw some money &rom circulation.
Types o& In@ation
'ost"Push In@ationCKeynesianD" cause* by an increase in the cost o&
pro*ucin/ /oo*s an* services+ &or e9ample+ &rom hi/her wa/es or
row material rices. 7irms will try to pass these costs onto consumers
throu/h hi/her prices.
eman*"Pull In@ation" cause* by total *eman* risin/ &aster than the
total output o& /oo*s an* services+ causin/ mar4et prices to riseW
Monetarism" is the believe by some economist that the money
supply into the economy cause* in@ation.
Fnemployment
Fnemployment rateCLD Number unemploye* X 2abour 7orce
1!!
7rictional Fnemployment" 0hen wor4ers chan/e $obs an* spen*
more time loo4in/ &or new $obs. 0or4ers may become unemploye*
&or relatively short perio*s as they leave $obs they *isli4e.
Seasonal Fnemployment" occurs because consumer *eman* &or
some /oo*s an* service is seasonal. 2i4e in Thailan* *urin/
ecember it is hi/h season so the hotel nee* more wor4ers to wor4
*urin/ this time.
'yclical Fnemployment" Yobs is lost *urin/ recession perio*.
Structural Fnemployment" The re*uction o& certain types o&
in*ustries.
Tua 11SK Sub$ect%Economics Shrewsbury International School#
-
7/26/2019 Econ note for a level
41/43
8utput an* -rowth
-ross omestic Pro*uctC-PD" is the main measure o& the national
income or output o& an economy sue* by /overnment an*
economists.
Economic -rowth" occurs when there is a rise in real -P.
The Economic 'ycle
Recession" Real -P /rows slowly o& &alls. eman* &or /oo*s an*
services &alls. 7irms cut their pro*uction an* lay o3 wor4ers. Pro,ts
an* other incomes &all.
Recovery" Real -P /rows &aster than normal. eman* &or /oo*s
an* services rises rapi*ly. 7irms increase output an* hire more
wor4ers. Pro,ts an* other income rises.
(oom" eman* &or /oo*s an* services rises &aster than output can
rise. This cause price in@ation.
-P per capital measure avera/e income per person but not their
economic wel&are. So :I is use*.
:I consist o&
1. -P per capital
Tua 11SK Sub$ect%Economics Shrewsbury International School;!
-
7/26/2019 Econ note for a level
42/43
. E*ucation an* 4nowle*/e measure* by the a*ult literacy rate
an* school an* colle/e enrollment.
#. :ealth an* 2i&e style measure* by li&e e9pectancy at birth.
Tua 11SK Sub$ect%Economics Shrewsbury International School;1
-
7/26/2019 Econ note for a level
43/43
evelope* an*
evelopin/ Economiesevelope* an* 2ess evelope* Economies
evelope* Economies" have a well *evelope* in*ustrial base an*
service+ a mo*ern in&rastructure an* hi/h avera/e income per
person.
2ess evelope* Economies or evelopin/ Economies have an
un*er*evelope* or *evelopin/ in*ustrial base+ a low level o&
economic *evelopment an* poor livin/ stan*ar*.
-P is commonly use* as an in*icator as *evelopment in*icators.
Population
(irth Rate number o& babies born &or every 1!!! people.
eath rate number o& people &or every 1!!! people
Natural increase (R"R
Net Mi/ration is the *i3erence between inwar* an* outwar*
mi/ration to an* &rom a country.
More people move into more *evelope* countries to en$oy better
livin/ stan*ar*.
epen*ency Ratio Total Population X 0or4in/ Population
In less *evelope* countries the *epen*ency ratios are hi/h an*
risin/ but in *evelope* countries are low but risin/.