Utility maximisation refers to the concept that individuals and firms seek to get the highest satisfaction from their economic decisions. For example, when deciding how to spend a fixed some, individuals will purchase the combination of goods/services that give the most satisfaction. Utility maximisation can also refer to other decisions – for example, the optimal …
Taxation on goods, income or wealth influence economic behaviour and the distribution of resources. For example, higher taxes on carbon emissions will increase cost for producers, reduce demand and shift demand towards alternatives. Higher income tax can enable a redistribution of income within society, but may have an impact on reducing the incentives to work …
Individuals choice of job/career/occuption will depend on how attractive the job is compared to the alternatives. Individuals will be influenced by various factors such as the wage levels, skills required and the likely satisfaction gained in the job. The supply of labour to particular occupations will depend on several factors. Wages. All things being equal, …
The fundamental economic problem is the issue of scarcity and how best to produce and distribute these scare resources. Scarcity means there is a finite supply of goods and raw materials. Finite resources mean they are limited and can run out. Unlimited wants mean that there is no end to the quantity of goods and …
Perfect competition is a market structure with: Freedom of entry and exit Perfect information/knowledge Many firms The price is set by the industry supply and demand. Firms are price takers; this means their demand curve is perfectly elastic. If they set a higher price, nobody would buy because of perfect knowledge. Therefore firms have an …
Effective demand refers to the willingness and ability of consumers to purchase goods at different prices. It shows the amount of goods that consumers are actually buying – supported by their ability to pay. Effective demand excludes latent demand – where the willingness to purchase goods may be limited by the inability to afford it …
Cobweb theory is the idea that price fluctuations can lead to fluctuations in supply which cause a cycle of rising and falling prices. In a simple cobweb model, we assume there is an agricultural market where supply can vary due to variable factors, such as the weather. Assumptions of Cobweb theory In an agricultural market, …
A production possibility frontier shows how much an economy can produce given existing resources. A production possibility can show the different choices that an economy faces. For example, when an economy produces on the PPF curve, increasing the output of goods will have an opportunity cost of fewer services. Diagram of Production Possibility Frontier Moving …