Supply refers to the quantity of a good that the producer plans to sell in the market. Supply will be determined by factors such as price, the number of suppliers, the state of technology, government subsidies, weather conditions and the availability of workers to produce the good. Movement along the supply curve As price increases …
An explanation of how wages are determined in a perfectly competitive labour market. A perfectly competitive labour market will have the following features Many firms Perfect information about wages and job conditions. Firms are offering identical jobs Many workers with the same skills Diagram of wage determination The equilibrium wage rate in the industry is …
Definition of substitute goods – Substitute goods are two alternative goods that could be used for the same purpose. Substitutes present the consumer with alternative choices. If the price of one good increases, then demand for the substitute is likely to rise. Therefore, substitutes have a positive cross elasticity of demand. Graph of two substitute …
Definition of Consumer Surplus This is the difference between what the consumer pays and what he would have been willing to pay. For example: If you would be willing to pay £50 for a ticket to see the F. A. Cup final, but you can buy a ticket for £40. In this case, your consumer …
Marginal utility theory examines the increase in satisfaction consumers gain from consuming an extra unit of a good. Utility is an idea that people get a certain level of satisfaction/happiness/utility from consuming goods and service. Marginal utility is the benefit of consuming an extra unit This utility is not constant. Often we get diminishing marginal …
Disequilibrium occurs when the markets fail to clear and find their final equilibrium point. Disequilibrium could occur if the price was below the market equilibrium price causing demand to be greater than supply, and therefore causing a shortage. Disequilibrium can occur due to factors such as government controls, non-profit maximising decisions and ‘sticky’ prices. Disequilibrium …
Definition of crowding out – when government spending fails to increase overall aggregate demand because higher government spending causes an equivalent fall in private sector spending and investment. Question: Why does an increase in public sector spending by the government decrease the amount the private sector can spend? If government spending increases, it can finance …
Microeconomics is concerned with the economic decisions and actions of individuals and firms. Within the broad church of microeconomics, there are different theories that emphasise certain assumptions and expectations of economic behaviour. The most important theory is neo-classical theory, which places emphasis on free-markets and the assumption individuals are rational and seek to maximise utility. …