Markets in Action

Markets in Action

1. Supply and Demand

   • supply
     • Shifted by
       • availability of recources
       • Price of resources
   • demand
     • Tastes and fashions
     • price of substitutes
     • Price of complements
     • incomes

2. Factors of production

   • Land
     • Natural resources
   • Labour
     • employees
   • Capital
     • Machinery
   • enterpise
     • Initial investment
     • Initiative

3. Elasticities

   • price elasticity of supply
     • Responsiveness of quantity supplied to a change in price
     • percentage change of quantity supplied /percentage change in price
   • Price elasticity of demand
     • Responsiveness of demand to a change in price
     • percentage change of quantity demanded /percentage change in price
   • Cross elasticity of demand
     • Responsiveness of demand for one product to a change in price of another
     • percentage change of quantity demanded of product A /percentage change in price of product B
   • Income elasticity of demand
     • Responsiveness of demand to a change in incomes
     • percentage change of quantity demanded /percentage change in income

4. Specialisation

   • division of labour
   • people get better at jobs

5. Efficiency

   • Productive efficiency
     • Where production takes place using the least amount of scarce resources
   • Allocative efficiency
     • economic efficiency
       • Where both productive and allocative efficiency are acheived
     • Where consumer satisfaction is maximised

6. Costs

   • Private costs
     • Costs to the individual of an action
   • external costs
     • Costs on a third party
   • Social costs
     • Total cost of an action
   • Negative extonality
     • When the social cost outweighs the private cost
   • Demerit goods
     • Their consumption is more harmful than realised

7. Failures

   • Government Failure
     • Where a government fails to correct market failure
   • Information Failure
     • Where a lack of information causes consumers and producers to make bad decisions
   • Market failure
     • Where the markets fail to achieve economic effiiciency

8. Public goods

   • Goods that are collectively consumed and have non-rivalry and non-excludability
   • Free riders
     • A problem of public goods. A person who benefits but does not provide.