Economics: Basic concepts and techniques, Markets, Efficiency and Market failure.

Transcription

1 Economics: Basic concepts and techniques, Markets, Efficiency and Market failure.

2 2 Chapter Content Page Number 1 Economic methodology and the economic problem 3 12 Economic methodology The nature and purpose of economic activity Economic resources Scarcity, choice and allocation of resources Production possibility diagrams 2 Price determination in a competitive market Law of demand and supply Types of goods Price elasticity and total revenue Income elasticity of demand and types of goods Cross of elasticity of demand Price elasticity of supply Consumer and producer surplus Interrelating markets 3 Production, costs and revenue Production and productivity Specialisation, division of labour and exchange Costs of production Average revenue, total revenue and profit Economies and diseconomies of scale 4 Competitive and concentrated markets Market structures The objectives of firms Competitive markets Monopoly and monopoly power The competitive market process Consumer and producer surplus 5 The market mechanism, market failure and government intervention in markets How markets and price allocate resources The meaning of market failure Public goods, private goods and quasi public goods Positive and negative externalities in consumption and production Merit and demerit goods Market imperfections An inequitable distribution of income and wealth Government intervention in markets Government failure Planner for homework 64 65

3 3 Economic methodology and the economic problem Chapter 1 Rishab has recently started his 2 year A-level studies at the local state school and he will have a week off from school during autumn break in October. Rishab has saved 500 from his job working at McDonalds during his summer holidays. Rishab has done his research over the internet using websites of several travel businesses like expedia, booking.com, easy jet and Ryanair etc and concluded that he has enough money to visit any one of the following cities: Berlin, Barcelona, Dublin, Paris and Madrid that are all in his bucket list. He decides to visit Barcelona as Rishab is a passionate footballer. Using examples from the above case study explain the following keywords: What is Economics? Scarcity: Opportunity cost: Hypothesis: Positive statement: Normative statement: Needs vs. Wants: Free goods: Economic Goods: What is economic welfare: The production process:

4 4 Resources/Factor of production: Capital goods: Consumer good: Homework Table 1: Activity (Tick the statement to be a positive or normative) Statement Positive Normative Congestion charge has reduced the traffic in Central London. Conservative government is a rich man government. The UK is a nanny state. The fall in interest rates will increase household spending. One way of reducing obesity is to increase taxes on sugary products. The British economy will do better outside the European Union Air turbines are an eyesore and they should be restricted. Boardroom pay is excessive and must be curbed. Resources Figure 1.1 Renewable Non renewable Reproducible Sustainable Recyclable Non recyclable/finite Explain and state the different types of resources in figure 1.1:

5 Land, Labour, Capital and Enterprise Land, Labour, Capital and Enterprise 5 Explain the fundamental economic problem and how does economics try to resolve it. Rational behaviour (Rational Choice Theory): Understanding Production Possibility Frontier (PPF) We have now established that resources are finite and firms within a country will have to make choices and produce the best possible combination of goods to satisfy the needs and wants of the citizens of the country. The PPF curve shows the different combinations of goods a country can produce with the given resources. To understand the PPF concept we have country Farm land and only two types of goods are produced: farm tractors and potatoes (capital and consumer goods). In Table 2, there are two scenarios provided to understand how PPF works: Table 2 Scenario A Scenario B I n p u t s Farm Tractor (Capital Goods) Units Potatoes (Consumer goods) Tonnes Calculate the Opportunity Cost I n p u t s Farm Tractor (Capital Goods) Units Potatoes (Consumer goods) Tonnes Calculate the Opportunity Cost

6 Plot the PPF curves from Table 2 on the previous page for country Farm land in Grid 1 & 2 Grid 1 Make notes of your observation of the graphs (Factor/resources substitutability): Grid 2 6

7 7 Using your observations from the previous page, explain the following keywords: PPF curve: Opportunity cost: Straight Line PPF Curve: Concave PPF Curve: Economic growth: Full employment: Unemployment: Productively efficient: Labour productivity: Capital productivity: Technology: Immigration: Emigration (Outward migration): Population growth: Discovery of new resources: Allocative efficiency:

8 8 What is an economy and explain the different types of economies in figure 1.2: Types of economies Planned economies: Mixed economies: Purely market based economies: Define markets and industry. State examples of them: Markets: Figure 1.2 Industry: In figure 1.3, explain the different sectors of the economy: Figure 1.3 Primary: Manufacturing: Service

9 9 Figure 1.4 Q.1. Explain the different points and shift of PPF curve in figure 1.4. Homework Multiple choice questions (MCQ) Q.2. In figure 1.5, a production possibility frontier for an economy is provided. Which one of the following movements involves a trade-off between providing more consumer goods and providing more of capital goods? A D to A B B to E C B to C D C to B Figure 1.5 The economy has had a lot of skilled inward migration. Adapt the diagram to show the change in the productive capacity of the economy. Q.3. Which statement is normative? A. Happiness depends not on the absolute level of a person s income but on his relative income B. Income per head has increased by a very large amount but people are not happier today than they were 25 years ago C. The government should promote happiness as a more important goal than the maximisation of production D. People are happier in more equal societies Q.4. The production possibility frontier in figure 1.6 shows a country producing only wheat and guns and has shifted from FD to FE. Identify the opportunity cost of producing OA Guns when the PPF is FD Figure 1.6 Explain one factor for shift of PPF to FE. In 2016, there was an outbreak of Ebola virus in Sierra Leone, which killed 100s of people and affected others. Using the internet you need to research about Ebola crisis in Sierra Leone There are two views to the issue: 1. Sierra Leone struggled in its fight against Ebola because so many of its doctors and nurses came to Britain in the hope of better jobs and better life 2. In recent times the population growth in the UK that is fuelled by immigration, has placed considerable strain on the country s infrastructure, especially primary school places in England and NHS maternity services. Task: From your research make notes about the positive and negative effects of immigration to the UK and that of its international partners. Using PPF Diagrams, assess the effects of immigration to the UK economy. On the next page you have been provided with Table 3 to help you plan and some ideas for your research. (18 marks)

10 10 Table 3: Plan a good plan helps to write a good essay Central Idea Advantages Disadvantages Ageing Population Skills Gap Tax contribution Diagrams (Used to explain key ideas):