Readers Question: What happens when the government subsidizes a product? A subsidy means the government pays part of the cost. For example, the government may give farmers a subsidy of £10 for every kilo of potatoes. The effect is to shift the supply curve to the right, leading to lower price and higher quantity demanded Diagram …
A big issue in economics is the tradeoff between efficiency and equity. Efficiency is concerned with the optimal production and allocation of resources given existing factors of production. For example, producing at the lowest cost. See: Different types of efficiency Equity is concerned with how resources are distributed throughout society. Vertical equity is concerned with …
Readers Question: At the time of the Economic collapse 2007/ 2008 or near the end of that period in 2010 the Labour administration had actually started to pull out of recession – True or False? The recovery began towards the end of 2009 (Q4). Q2 growth in 2010 was quite high at 1% (annualised 4%) …
Total revenue (TR): This is the total income a firm receives. This will equal price × quantity Average revenue (AR) = TR / Q Marginal revenue (MR) = the extra revenue gained from selling an extra unit of a good Profit = Total revenue (TR) – total costs (TC) or (AR – AC) × Q Profit …
Microeconomic topics Consumer and producer surplus Demand Substitute goods Complements Economies of scale Elasticity Price elasticity of demand Cross elasticity of demand Income elasticity of demand Price elasticity of supply Market equilibrium Production possibility frontiers Positive and normative statements Opportunity cost Specialisation and division of labour Market failure Positive externalities – the benefit to a …
Governments intervene in markets to try and overcome market failure. The government may also seek to improve the distribution of resources (greater equality). The aims of government intervention in markets include Stabilise prices Provide producers/farmers with a minimum income To avoid excessive prices for goods with important social welfare Discourage demerit goods/encourage merit good Forms …
Definition: Price elasticity of demand (PED) measures the responsiveness of demand after a change in price. Example of PED If price increases by 10% and demand for CDs fell by 20% Then PED = -20/10 = -2.0 If the price of petrol increased from 130p to 140p and demand fell from 10,000 units to 9,900 …
Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit. Monopoly – One firm dominates the market, barriers to entry, possibly supernormal profit. Monopoly diagram Oligopoly – An industry dominated by a few firms, e.g. 5 firm concentration ratio of > 50%. Interdependence of firms Oligopoly diagram Collusive behaviour – firms seek to …