% CHANGE IN QD
% CHANGE IN
PRICE % CHANGE IN
PRICE
Government Regulation Buffer Stock Schemes
Price Elasticity
Reduce price
of Demand
fluctuations of
Price Elasticity
a commodity.
of Supply Determinants
– Availability of
Determinants substitutes
– If the good is a
– Level of spare luxury or necessity
capacity Elasticity good.
– State of the – If it’s an addictive
economy good
– Ease of entry into – Time period = short
market
% CHANGE IN QD
% CHANGE IN QD FOR A
– Substitutes= rise in price in
coffee, increased demand for
– Normal good= when income
% CHANGE IN PRICE FOR increases, demand increase
tea
B – Complementary = fall in – Inferior good = when
income increases, quantity
price of fuel, increase demand
decreases.
for cars
Grant provided by the Subsidies Tradable Pollution Permits
s
government to encourage
Advantages of Regulations
production and
– Simple to understand. Eg age – 2005 – European Commissions= this attempts to limit
consumption. Goods
restrictions on that
alcohol. greenhouse gas emissions from heavy industry.
–have high external
Its possible to fine companies who – Each year they give out carbon dioxide permits. These
don’t apply to the regulation
benefits permits are tradable so firms can buy and sell them.
– Consumer protection laws may help
reduce asymmetric information
Symmetric Information
Frictional Unemployment
– Normal – while people search for jobs and fill – Where consumers and producers have
them. perfect and equal market information on
a good. This leads to an efficient allocation of
– Free market equilibrium is Pe and Qe resources.
– Socially optimum equilibrium is P1
and Q1
– ZY shows external cost
– By placing tax equal to external cost
it internalizes the pollution
– Consumer tax top = YP1PeT
Positive Externalities
Triangle of Welfare Gain
– External benefits = recycling waste materials reduces
amount of waste disposal at landfill sites as well as re-using
materials for production.
– Private Benefits= ie the revenue that a firms receive from
selling a good/service
– Social Benefits = adding private and external benefits
together
Balance in market, with no
Consumer Surplus
Extra amount of tendency for output or price to
money consumers are change
willing to pay above
what they actually
pay.
Price
Mechanism Functions
Division of Labour
The value of the next Advantages:
best alternative – Be highly skilled in
forgone. that area
Form of specialisation – No time wasted
= individuals – Less time is required
Free-market Free-market / concentrate on to train workers
– More choice of jobs
Malaysia
Consumer taxMixed
on top! Economies production of a
Disadvantages for workers
Decided by the particular good.
Thailand – Higher output per
price mechanism: – Repetition = boredom, high
worker
Centrally Mixed turnover of staff
– Reduces cost of
– What Decisions are made
Planned – Structural unemployment, easy to
– How partly by private output
replace worker with robots.
– Who Government UK sector, partly by
– Specialization creates
makes all France government
interdependence in production. If
decisions Germany
one section goes on strike, the