Economics unit 2 notes

Opportunity cost is the economic cost of production: This is that great deal you just cannot pass up. The first states that given certain assumptions, competitive markets price equilibria with transfers, e.

Distinguish between the Public Sector and the Private Sector. Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price distortions caused by these externalities.

Specialization is considered key to economic efficiency based on theoretical and empirical considerations. Unemployment occurs in a negative output gap. One must show the ability to pay and then the willingness to pay.

The private sector firms, for instance, aim to maximise profits for their owners. A crude Economics unit 2 notes welfare function can be constructed by measuring the subjective dollar value of goods and services distributed to participants in the economy see also consumer surplus.

Other inputs are relatively fixed, such as plant and equipment and key personnel. One extra unit of utility for a starving person is not seen to be of any greater value than an extra unit of utility for a millionaire.

They have proposed other means of measuring well-being as an alternative to price indices, willingness to pay functions, and other price-oriented measures. In theory, in a free market the aggregates sum of of quantity demanded by buyers Economics unit 2 notes quantity supplied by sellers may reach economic equilibrium over time in reaction to price changes; in practice, various issues may prevent equilibrium, and any equilibrium reached may not necessarily be morally equitable.

Numerous utility functions can be derived, one for each point on the production possibility frontier PQ in the diagram above. Similarly, demand-and-supply theory predicts a new price-quantity combination from a shift in demand as to the figureor in supply.

Here as well, the determinants of supply, such as price of substitutes, cost of production, technology applied and various factors inputs of production are all taken to be constant for a specific time period of evaluation of supply.

That's diminishing marginal utility. Production is a flow and thus a rate of output per period of time. It can also be generalized to explain variables across the economyfor example, total output estimated as real GDP and the general price levelas studied in macroeconomics.

Economics Unit 3 Revision Notes

Sole traders have full responsibility. Income effect basically happens when salaries are on the rise. Choices must be made between desirable yet mutually exclusive actions. Microeconomics examines how entities, forming a market structureinteract within a market to create a market system.

This states that as prices drop consumers will buy more than usual at the expense of a different product. A unifying theme is the attempt to optimize business decisions, including unit-cost minimization and profit maximization, given the firm's objectives and constraints imposed by technology and market conditions.

Economics Revision

As the price of a commodity falls, consumers move toward it from relatively more expensive goods the substitution effect. Thus, if one more Gun costs units of butter, the opportunity cost of one Gun is Butter. These can lead to a conflict in macroeconomic policies and as a result there will be a trade off where on macroeconomic objective has to be curtailed to favour another objective For example: Because of this, the owner would be able to find out quickly what people want.

In the simplest case an economy can produce just two goods say "guns" and "butter". Customers without knowledge of whether a car is a "lemon" depress its price below what a quality second-hand car would be.

The intermediate form of social indifference curve can be interpreted as showing that as inequality increases, a larger improvement in the utility of relatively rich individuals is needed to compensate for the loss in utility of relatively poor individuals.

Environmental scientist sampling water Some specialized fields of economics deal in market failure more than others. If costs of production are not borne by producers but are by the environment, accident victims or others, then prices are distorted.

It also analyses the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets[51] financial crisesand related government policy or regulation.

The social welfare function is typically translated into social indifference curves so that they can be used in the same graphic space as the other functions that they interact with.


Some even question the value of ordinal utility functions. Long run declining average costs in a natural monopoly. If sales of ice cream were to increase in January as a result of a price cut, however, the information we would be receiving is that the demand was artificially manipulated.

In the case the business can most likely raise prices without suffering a drop in sales. Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analysed does not affect other markets.

An example production—possibility frontier with illustrative points marked. It really tells us that actual demand is low and that extra efforts had to be made to increase sales. It tasted great so you want another.

Edexcel Unit 2 – Macroeconomic Performance and Policy

Describe the main features of private sector firms in terms of ownership, control and aims/objectives? Private sector firms are owned by the general public, while on the other hand, public sector firms are owned by the country as a whole.

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Measuring the Economy 1; Measuring the Economy 2; Money. Does anyone have revision notes for economics unit 2? If so pls make an attachment. Anyone finding unit2 hard?? Advanced Placement Economics Teacher Resource Manual © National Council on Economic Education, New York, N.Y.

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Economics unit 2 notes
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Unit 1 - Basic Economics