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Economics A Level

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Why is Economics seen as a Social Science?

-Looks into how Humans Behave, Alone or in Organisations, and how they use Scarce Resources

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Economics A Level - Details



931 questions
Why is Economics seen as a Social Science?
-Looks into how Humans Behave, Alone or in Organisations, and how they use Scarce Resources
How may Economics be similar to that of Natural Sciences?
-Economics makes Theories to explain Events -Limit the Variables in an Investigation [Ceteris Paribus] -Test Theories and Models against Facts -Using Graphs, Statistics and Observations -Using Empirical [Data via Experiments or Observations] to improve Economic Models -Make Predictions
How may Economics be Different to that of Natural Sciences?
-Economists can't do Laboratory Experiments where One Variable is Changed at a time - Logistically and Practically Impossible
What is Ceteris Paribus? How do Economists use it?
-Ceteris Paribus is when 'all other things remaining equal' -Economists use this to have 2 Factors change and 'all other things remaining equal' that would otherwise Affect the Result -This allows Theories, Models and Predictions
How may Economic Decisions be based on?
-Normative Statements: People's Opinion -Moral Views & Value Judgements: [Wealth should be shared as no one deserves to live in Poverty] -Political Judgement: Taxes falling --> Re-Elected? -Short Term Positive Consequence: No Concern of Long Term Consequences [Taxes falling to win but reducing Government Income]
What are Positive Statements and Normative Statements
-POSITIVE Statement are Objective Statements that can be Tested via Current Evidence. They can show if the Economic Idea is True -NORMATIVE Statement are Subjective Statements that are simply Opinions. Important as Decision making and Gov Policy influenced by it - Political Party may raise Taxes to Distribute Income
What is the Basic Economic Problem?
-How can the Available [Scarce] Resources satisfy People's Infinite Needs and Wants as Best as Possible?
What are the 4 Factors of Production
Land, Labour, Capital, Enterprise
What is Land? [Factors of Production]
-Land Includes Non-Renewable Resources [Oil & Natural Gas] Renewable Resources [Tidal or Wood] Materials via Mining, Water & Animals -Almost all things that are in 'Land' are Scarce
What are Free Goods? Use Air as an Example
-Air is not a Scarce Resource - Everyone can have as much as they'd like. But since there's enough to Satisfy Everyone, then it is Impossible to Sell Air. -This is Free Goods: Goods that People get for Free and that there's little point to Sell, as why Buy Something you get for Free.
Summarise Labour [Factors of Production]
-Labour is Work Done by People contributing to the Production Process - the Labour Force -There are also People Capable of Working, and Old Enough, but don't have a Job - Unemployed -People who isn't in Paid Employment, but still provide People's Needs and Wants -Different People have Different Levels of Education, making some people more Valuable - Productive - in the Workplace - Greater Human Capital
Summarise Capital [Factors of Production]
-Capital is Equipment, Factories and Schools that help to Produce Goods / Services -Capital has to be MADE first - Crucial Difference to Land -Much of it is Paid by the Government ie Infrastructure
Summarise Enterprise [Factors of Production]
-Entrepreneurs taking Risks and creating Things from the other 3 Factors of Production -Run Firms and could Fail, or Succeed taking in Profit as a Reward
What is Economic Activity?
-Combining the Factors of Production to make Output that People can Consume. -The purpose of Economic Activity is Increasing the Economic Welfare of People via making Outputs that Satisfy their Needs and Wants
What are some of the Forms of Economic Activity?
-Making of Goods [Physical Products] and Services [Intangible Things] -Consumption of Goods and Services - Satisfying Needs and Wants -Housework, DIY and Bringing up Children [May not be Paid but is still Economic Activity as Services are being Provided]
What are the Agents [Participants] in an Economy?
-Producers: Decides what to Make, and Selling Price -Consumers: What they want to Buy, and how much they'll Spend -Governments: How much to Intervene in how Producers and Consumers Act.
What does it mean to be 'Rational' -Why is this Relevant?
-Rational People make Decisions that are the Best for themselves. This will be based on Economic Incentives [Maximise Behaviour] -Relevant as Market Economies assume all Economic Agents are Rational
What does a PPF show?
-The Options Available when Considering the Production of 2 Types of Products.
What are Trade offs in the Form of PPFs?
-Trade Off is when you have to Choose despite Conflicting Objectives as you can't do All your Objections at the Same Time -Compromising and doing a little Bit on your Objectives
-What are the Points on the PPF called? Why are they not Allocatively Efficient?
-All Resources are used as Efficiently as Possible to make the Maximum Possible Output, if the Point is on the PPF -But not all Points will reflect Society's Wants and Needs: A Point that makes All Houses and no Guns that is on the PPF may not be want Society wants
What are Points INSIDE the PPF Representing?
-Given the Current Level of Resources, you can Produce more of Good X while not cutting back on Good Y -It is Productively Inefficient
What are Points OUTSIDE the PPF Representing?
-Points outside are Unachievable given the Level of Resources in the Economy at that time -Better, or Extra, Resources must be found.
What is Opportunity Cost?
-It's what you give up in order to choose something else.
How can the Opportunity Cost and PPF link up?
-Moving along the PPF shows the Opportunity Cost attached from doing so: You Produce more of Good X, but in response the Opportunity Cost is making Less of Good Y
Why is Opportunity Cost very Important in Economics Question? -How do Consumers, Firms and Government use Opp Cost?
-Makes sure a more Efficient Allocation is ensured -Consumers use this to Choose what to spend their Income on -Firms use this to see the Profit Forgone by not going down an other Route -Governments use this to see the Lost Value to the Nation from Policies they didn't Implement
What are some Problems with using Opportunity Cost?
-Not all Alternatives is Known -Sometimes, there are no Alternative Ways or Usages -Lack of Information on Cost and Alternatives -Some Factors can be hard to Switch to Alternative Use
What can cause the PPF to Shift Outwards? Can the PPF be Vertical or Horizontol?
-If the Amount, or Quality, of Resources Change for the Better -Increase in the Number of Workers, or more Natural Resources, or Better Technology or Labour Force, will lead to a PPF Outward Shift -This is because More Output is Produced using the Same Resources -And it can be Horizontal or Vertical, only if it affects Good X and not Good Y ie Better Quality Resources that concern Good X
What do Markets do? How does this Work?
-Markets try and Allocate Resources. -Buyers and Sellers in a Market will try to Exchange something they'd prefer to have. Labour can be Exchanged for a Salary
If Markets are considering that Everyone is Rational, what can be Assumed?
-Worker would prefer to have More Wages, but less Free Time -Employers would Prefer to have Less Money, and know someone is there to do the Work
What is a Free Market?
-Free Markets are when Resources are Allocated via Supply and Demand, and the Price Mechanism -Anything will be Sold at Any Price that people will Pay for it -No Public Sectors would be Present
What are the Advantages of Free Markets?
-Any Product being able to be Bought and Sold can mean only the Best Value will be Demanded. Therefore Firms must Incentivise to make Goods Efficiently and Quality -Good Ideas, like making Better Products or Efficiency, is Rewarded through a Lot of Money. -Incentives from Innovation [that come from how Good Ideas can be Handsomely Rewarded] can mean a Greater Choice for Consumers. Not Restricted to buying Gov Recommendation
What are the Flaws of Free Markets?
-Market Economies can create Huge Inequality in Income. Can be seen as Unfair as people Unable to work would get 0 Income -Non-Profitable Goods may not be made as Firms may not be able to get a Profit: Little Incentive -Some Successful Firms can create a Monopoly and be the Only Supplier of the Product: can be Abused
What is a Command Economy?
-Governments decide on How the Resources are Dished out. -Was seen in the Soviet Union, and is in North Korea -No Private Sector would be seen
What are the Advantages of a Command Economy?
-Inequality and Distribution of Income can be made very Fair and Equal. Also means the Production of Goods that are Needed and Benefits Society -Unemployment can be made Low as the Government can Provide all with a Job and Salary -No Monopolies being set up as the Government allocates the Resources, so can Dictate really who Supplies the Product
What are the Flaws of a Command Economy?
-Lack of Information can lead to Bad and Slow Decisions about what needs to be Produced -Consumers will have less of a Choice as Firms are being told what to Make -Gov owned Firms have no Incentive to Improve Efficiency, Take Risks, or Innovate as they don't get any Reward [Profit]
What are Market Failures? How may the Government Intervene?
-Market Failure is when Free Markets leads to Unwanted Outcomes [Over or Under Produced/Consumed] -Governments may change the Law, offer Tax Breaks, Create Incentives to change Behaviour or Providing and Subsidising Goods and Services
What is a Mixed Economy?
-When the Government and the Market Intervene to Allocate Resources
What is the Public and Private Sector?
-The Public Sector is basically the Government -The Private Sector as Firms that aren't owned by the Government but by Individuals.
What did Adam Smith Say and Believe In? 1723-->1790
-Shaping the Traditonal Economic Theory, Smith believed in the Free Market and how the 'Invisible Hand' would Allocate Resources in the Best Way Possibly -Reasoning was how Consumers and Firms are thinking about how to Maximise their Own Benefits and Profit. In the Free Market, the Consumers Demand, and Firms Supply, will lead to a Price that Satisfy both Parties. -Monopiles can't Exist, and Low Barriers should be made to Maximise Competition [as Innovation and Efficiency Skyrocket] -Smith also Mentioned Specialisation and Division of Labour
What did Karl Max Say and Believe In? 1818-1883
-Criticising the Free Market, saying a Small Ruling Producers had Dominance over the Working Class [Bourgeoisie vs Proletariat] -Profit Maximisation Behaviour would Exploit Workers [Low Wages ie] until a Revolution took place. This would lead to the Proletariats Controlling in the Ownership of Resources -Marx led to Communism rising, but Marx didn't say much about Command Economies.
What did Friedrich Hayek Support and Believe In? 1899-1992
-Supporter of Free Market; Nay to Command Eco. -Argued that Govs should not Intervene to Allocate as Govs don't have the Information to Allocate in a way to Benefit Society Greatest, but Rather Consumers and Firms have Best Knowledge on their Needs and Wants, so it should be left to Them -Hayek saw the Pricing Mechanism a way to 'Communicate' - Price Level set by Supply & Demand showing what Consumers and Firms Want, and therefore will Naturally Allocate Resources Better
What is a Margin? -What is a Marginal Cost?
-A Change in a Variable, due to an Increase of One Unit of Another Variable -So Marginal Cost of Good X is the Additional Cost of making one More Good X - The Cost of the Final Good X Produced
Why is Marginal Changes important in Economics? -Where is it Seen?
-Theories is based on Assumptions that Decisions people make is based on Marginal Changes: Do I work another Hour? -Seen in: Price, Wage Differentials, Externalities, Profit Maximising in Perfect Competition & Efficiency of Mark Structures.
Why do Traditional Economics assume that Economic Agents [Producers, Workers and Consumers...] act Rationally?
-This can be based on the Assumption that Economic Agents want to Maximise their Utility [Well-Being] -Different Economic Agents will have different Ways and Targets to Maximise their Utility: Consumer with Value; Producer with Profit -This means Decisions have to be made on the Basis that it will Gain the Most Utility more: Nothing else will Influence that Decision
What is: 1. Marginal Utility 2. Total Utility 3. The Law of Diminishing Marginal Utility
1. The Benefit from the Consumption of One Additional Unit of Good X 2. Overall Benefit from Consuming Good X 3. As Each Additional Unit is Consumed, the Marginal Utility goes Down.
Why may Producers may Maximise their Profits?
-Profits allows the Firm to Survive -Better Profits can lead to be Better Rewards for Shareholders & Staff -Profit to be Reinvested to hope of making More Profit Later [Growth]
What other Objectives can Producers focus on and Why?
-Larger Market Share: Leads to Monopoly Power, therefore charging High Prices from Lack of Competition [Profit?] -Massive Firms: Seen to be Prestigious and Stable, getting Best Employees and Resources -Ethical Reasoning: Doing Good, even if Profits do not Increase.
What will the Consumer’s Objective be?
-To Maximise their Utility, which is confined by their Income -Utility will have Different outcomes for Different People - Some value the aspect of a Secure Pension Fund while others want Luxurious Sports Cars -Whatever they spend on, it is said to be Rational as it increases their Utility in their own Sense
What do Governments try to Aim for in terms of Economics?
-Ultimately it is to Balance the Resources of the Nation to the Needs & Wants of Population - Maximise the Public Interest. These are: Economic Growth, Full Employment, Equilibrium in Balance of Payments and Low Inflation. -However it is important to note that solving One of these Objectives may make another Worse off - More Gov Spending to create Jobs Yay, Inflation may pick up: Nay
What are the Key Principles of Traditional Economics? -How does Behavioural Economics challenge that idea?
-Economic Agents have a Maximising Behaviour [Total Self Control] -Economic Agents are Rational - act for the Best Interest for Themselves -Behavioural Economics says this isn’t Realistic due to the Social, Psychological and Emotional Factors that may sway Economic Agents. However, they do not Ignore the Traditional Viewpoint, but make it more Suited for the Real World
What is the Concept of ‘Homo Economicus’
-Rational Individual will Maximise their Utility, Profit - Whatever by seeing if the Opportunity Cost is too Big or not. They choose the Option that yields in the most Reward
How can Asymmetric Information/ Imperfect Information challenge Traditional Economics?
-Traditional Assumes that Economic Agents have all the Information needed to make the Right Choice, therefore, leading to the Perfect Choice. -However, in real life, Economic Agents will most likely not have All Information needed, therefore, leading to Market Failure -They may also be in a Situation where 1 Party knows more than the Other - which can be Abused. -Therefore it is Wrong to Assume Rationality predicts how Consumers Consume.
What other Restrictions prevents Economic Agents from acting Rational? [Bounded Rationality] -What sort of Decision happens in the End with Bounded Rationality?
-Time is Limited to make a Decision -Not all Information is Available - Some may be Wrong -Unable to Evaluate such a Swarm of Information to make a Decision, and not knowing the Opp Cost. -A Satisfying Decision is therefore made as they may not be able to spend Ages on making a Decision and just go with whatever Pleases them the Most.
How does Behavioural Economic challenge the ‘Total Self Control’ Theory
-Individuals have Limits on Self Control - Bounded Self-Control. -Consumer has Limited Control to Quit Smoking, even if Smoking doesn’t Maximise Utility [Addiction]
What are the Different Biases an Individual will be faced by in Behaviour Economics?
-Rule of Thumb: Simple Tools helping to make a Decision -Anchoring: Placing lots of Emphasis on One Piece of Information -Availability Bias: Decisions made on the Chances of an Event to happen, based on how Easy to remember such Event - After an Earthquake, Overestimations may happen of Earthquake happening soon. -Social Norms: Decisions influenced by the Group they are In. -Habitual Behaviour: Doing the Same thing Continuously - going to the same Shop despite Rational Theory. -Altruism: People want to act Fairly and treat people Better. People don’t act Purely on Self Interest.
What is a Choice Architecture?
-Individual’s Choice is Swayed via Adapting the Way the Choice is Presented. -Simply, how the Choices are Presented to Individuals
How can Choice Architecture be Done?
-Default Option: People will go with the Default Option, making them Act in a Certain way. -Framing: Using the Importance of Context to present Information. £1 a Day vs £7 a Week -Nudges: Alternatives become Easier to Choose than others WITHOUT removing Freedom of Choice eg Smoking in certain Areas -Restricted Choice: When Choices are Restricted -Mandated Choice: When Choices must be Made - Opt In or Out of Organ Donation
What is a Market?
-Buyers and Sellers exchange Goods and Services -Price charged is Influences by Demand & Supply Curves -This can be Illustrated using a Diagram.
What does Demand show? -What about a Demand Curve?
-Quantity of Good/Service that Consumers are Able, and Willing, to Buy at a Given Price and Time -Demand Curves show show Relationship between Price and Quantity Demanded. At any point, X Quantity would be Bought at Y Price.
Why are Demand Curves sloping Downwards?
-Consumers want to Pay the Lowest Price Available [Maximising Behaviour] and so as the Price Falls, more Consumers are Able to Buy More. Opposite happens when Price Rises -So Therefore when Price is Low, the Quantity Demanded is usually High
What does a Shift in the Demand Curve lead to?
-Left means that Quantity Demanded Falls at Any Given Price Level when compared to Original Level. Opposite happens when Shifts to the Right [Higher than OG]
What can Cause the Demand to Shift?
-Changes in Taste and Fashion can cause Considerable Shifts in the Demand Curve -Changes in People’s Real Income can also Affect the Level of Consumption
What are Normal, Inferior and Luxury Goods?
-Normal Goods are those that will be Demanded more as Real Income Increases. Therefore leading to Demand Curve shifting Rightwards -Inferior Goods are those that will be Demanded Less as Real Income Increases, as they may switch to more Expensive Goods instead. This leads to Demand Curve Shifting to the Left -Luxury Goods are those that are Not Essential and are Associated with those with Higher Wealth and Income, due to Status and Flex. More Equality in Income therefore may seen Demand Curve for Luxury Goods shift to the Left.
What is a Substitute Good? [Competitive Demand]
-An Alternative Good to Each other. For Example, Meat and Lamb or Xbox and PS4 are Substitute Goods as they are both Alternatives to each other -If Price of Xbox Fell, then Xbox will be Demanded More, and Consumers from PlayStation may be Swayed over [Rationality] therefore leading to a Decrease in Demand for PS4.
What is a Complementary Good?
-Goods that are Used Together - Joint Demand. -eg Xbox and Xbox Controllers are in Joint Demand. If price of Xbox Increases, it will lead to Less Quantity Demanded. This will also lead to Xbox Controllers having less Quantity Demanded as well
What is Derived Demand?
-Demand for a Good or Factor of Production used to make Another Good. -For Example, if the Demand of Wooden Fencing Increased, then the Derived Demand for Wood will also Increase
What is Composite Demand?
-Goods may have Multiple Uses - Oil -Demand Curve therefore for Fuel, that leads to more Quantity Demanded [And therefore Supplied] means that less Oil may be Devoted to make Plastics - leading to Less Quantity Demanded as a Result
What is the Price Elasticity Demand? [PED] -Give the Formula
-How well Quantity Demand responds to a Change in Price PED = % Change in Quantity Demanded [Qd] / % Change in Price [P] PED = % Change of Qd / % Change of P
Toy Cars Price has Increased from 50 to 70p leading to a Demand Reduction from 15 to 10 Cars. What is the PED?
-First, find the % Change in Qd: [15:100& —> 10:67%] -Therefore %Change in Qd is -33% [Negative as its Dropped] -Now % Change in P [50:100% —> 20:40%] -Therefore %Change in P is 40% -Therefore the PED is -33%/40% = -0.83
What does the PED mean if it is Greater than 1 or Lower than -1 PED > 1 OR PED < -1
-This means the Demand is Elastic. Elastic Demand means that a Change in Price leads to Larger Change in Quantity Demanded. Gets more Extreme as the PED gets Larger or Smaller -On a Diagram, it wouldn’t look Steep which shows off how little Price Changes cause Greater Quantity Demanded Changes
What is Perfectly Elastic Demand?
-This is when the PED is + or - Infinity -This means that any Price Increase leads to a Demand Blackout - it Falls to 0. -Therefore it is Illustrated as a Horizontal Line in a Diagram. -It has only 1 Fixed Price where Consumers are Happy with.
What does the PED mean when it is Between -1 and 1 -1 < PED < 1 [Can’t be Equal]
-This means the Demand is Inelastic. Any Change to Price leads to Smaller Change in Quantity Demanded. This gets more Extreme as the PED approaches 0 -On a Diagram, it would look Fairly Steep, Showing off the Fact that changing the Price does Little Effect to Quantity Demanded when compared to the Price Change in %
What is Perfectly Inelastic Demand?
-This is when the PED is 0. -Any Change in Price will have No Effect on the Quantity Demanded. This is Illustrated as a Vertical Line
What is Unit Elasticity?
-This is when the PED is + or - 1 -This means the % Change in Qd is the SAME as % Change in Price.
What is Income Elasticity of Demand [YED] -Give the Formula
-Shows how well the Demand Responds to Changes in Real Income YED = % Quantity Demanded [Qd] of a Good / % Change in Real Income [Y] YED = % in Qd / % in Y
The Toy Car Company has seen an Increase from 4 to 10 Cars after an Increase of Real Income from 18K to 23K. Calculate the YED
-First the % in Qd [4:100% —> 10: 250%] Therefore % in Qd is 150% -Now % in Y [18:100% —> 23: 127.78%] Therefore % in Y is 27.78% Therefore YED i 5.4
What is Income Elasticity?
-This is when YED is Greater than 1 -This means that Every Single % Increase in Income [Or Cuts] leads to Greater % in Demand -In an Income [Y Axis] Quantity Demanded [X Axis] Graph, It wouldn’t look Steep
What is Income Inelasticity?
-This is when YED is Less than 1 -This means that Every Single % Change in Income leads to Less % change in Demand -In an Income, Quantity Demanded Diagram, it would look Steep
What is a Perfectly Inelastic Income?
-This is when the YED = 0 -This means that any Change to Income leads to no Change in the Quantity Demanded
What is Cross Elasticity of Demand [XED] -Give the Formula
-Shows how Quantity Demanded for Good X responds via a Change in Price for Good Y XED = % Change in Quantity Demanded [Qd] for Good X / % Change in Price [P] of Good Y XED = % Change in Qd of Good X / % Change in P of Good Y
What happens if the XED is: 1. Positive 2. Negative
1. Positive simply makes Good X and Y Substitutes to each other. As XED gets Larger, this makes Good X get more Extreme % in Qd as % Change in Price for Good Y 2. Negative makes Good X and Y Complementary Goods. As XED gets more Negative, Good X gets more Affected in % in Gd as % Change in Price for Good Y
What Factors Influence the Price Elasticity of Demand?
-Substitutes: More Alternatives a Good has, the More PED it is. This because Consumers can Switch to something else if Price Rises. -Type of Commodity: Essential Items is Inelastic whilst Non-Essential is Elastic. Habit-Forming like Alcohol is Inelastic. Goods that can not be Postponed are Inelastic. Goods that have different Uses [Wants] are Inelastic -% Spent on Good: Products that need more % of Income is more Elastic. -Time: Long Run shows Demand becoming more Elastic as it becomes Easier to switch to Alternatives.
How can Substitutes be an Influence to Price Elasticity of Demand
-More Alternatives a Good has will make it more Price Elastic Demand as Consumers will be able to switch to an Alternative if the Price Rises -The Number of Substitutes is based on how Closely Linked they are.
How can the Type of Good/Service be an Influence to Price Elasticity of Demand
-For Essential Goods, it is Price Inelastic. Consumers will still need to Buy even if Price goes Up. Non-Essential Goods is the Opposite [Elastic] -Goods that are Habit-Forming [Tabaco, Alcohol] are Demand Price Inelastic -Goods that can not be Postponed are Demand Price Inelastic -Goods with Several Uses, like Water, are Price Inelastic.
How can the Percentage of Income spent on a Good be an Influence to Price Elasticity of Demand
-If the Good requires a Large % of Income, it will be more Price Elastic than Goods that need a Small % -Big Ticket Goods will have Consumers spend more Time looking at the Best Price
How can Time be an Influence to Price Elasticity of Demand
-Usually, overtime, Demand becomes more Price Elastic as Consumers have had the Time to Shop around and find Alternatives -Habits and Loyalties can also Change
How can the Price Elastic Demand change over a Demand Curve? [For a Normal Good] -What happens to Revenue therefore?
-It begins at Negative Infinity - High Price but 0 Demand -Then eventually reaches -1 at the Midway, and then to 0 when Price = 0 -Revenue will be Constantly Changing therefore. Total Revenue will be when the PED is - or + 1.
What will happen to 1. Good with ELASTIC Demand 2. Good with INELASTIC Demand If the Price Rises
1. This will lead to Less Revenue. 2. This will lead to More Revenue
What is a Normal Good?
-Normal Goods are those with a Positive YED [Income Elastic Demand] -This means as Income Rises, Demand will also Rise. The Amount of Quantity Demanded is Subject to Products Elasticity
What is a Luxury Good?
-This is when the YED is More than 1
What is an Inferior Good?
-Inferior Goods are those with a Negative YED. -This means as Income Rises, Demand will Fall as the Inferior Good is Replaced with a Better Quality Normal Good
What XED will occur if there are: 1. Substitutes 2. Complements 3. There is a XED of 0
1. Substitutes will have a Positive XED. This means a Fall in Price of One Good leads to a Fall in Demand for the Other Good. The Intensity is Dependent on how Linked the Goods are. 2. Complementary Goods will have Negative XED. Increase in Price for One leads to a Fall in Demand for its Complements 3. This means the Good are not Independent and aren't Related.
How can the YED of a Product be Used for Sales Forecasting & Pricing Policy? -Why may Firms choose to Produce a Range of Goods with Different YEDs
-If Changes in Income is Likely, then Sale Levels can be Predicted - the YED of the Good must be known. -If Price is Reduced when Incomes are Expected to Fall, then the Demand Reduction will be Limited - Less Switch over to Inferior Goods -Making a Rang of YED Goods will mean that during a Boom, Demand for High YED will Increase. During a Recession, Goods with Low YED will be High.
What is Supply?
-The Quantity of Goods/Service that Produces Supply to the Market at any Given Price, at a Given Time
What does a Supply Curve show?
-The Relationship between Price and Quantity Supplied. Any Point along the Curve will give you a Quantity X and a Price Y
Why do Supply Curves slope Upwards?
-Ceteris Paribus, Producers and Sellers want to Maximise their Profits, and so, the Higher the Price, the Higher the Profit -So Therefore Higher Profit gives an Incentive to expand Production and Increase Supply. That's why Quantity Supplied Increases as Price Increases [More than the Cost of Supplying More]
How can Changes to the Cost of Production lead to a Shift in the Supply Curve? [And Improved Tech]
-Increase in of the Cost of Production [Wages] will lead to Less Profits being made and Lead to a Left Shift. -Had it Decrease, and then more Profits would be made leading to More Profits being made and a Shift to the Right -If Technology Improves then Supply can be Increases as Cost of Production is Lowered.
How can Changes to the Productivity of Factors of Production lead to a Shift in Supply Curve?
-More Productivity of a Factor of Production leads to more Output from a Unit of Factor - meaning more is Supplied and the Curve shifts Right
How can Indirect Taxes & Subsidies lead to a Shift in Supply Curve?
-Indirect Tax basically Increases Costs for a Producer. -This lead to Less being Supplied and the Curve shifts to the Left. -Subsidy will Encourage Production and Reduce the Cost for the Producer, leading to more Supply and a Rightward Shift