Unit 1 - Markets & Market Failure

Ben Cooke
Mind Map by Ben Cooke, updated more than 1 year ago
Ben Cooke
Created by Ben Cooke over 5 years ago


AS Economics Mind Map on Unit 1 - Markets & Market Failure, created by Ben Cooke on 01/25/2015.

Resource summary

Unit 1 - Markets & Market Failure
1 Economic Activity
1.1 Factors of Production
1.1.1 CELL
1.2 Needs/Wants
1.3 The basic economic problem
1.3.1 Scarcity
1.3.2 Opportunity Costs
1.4 Objectives
1.4.1 Individual Max gains from working Max purchasing power
1.4.2 Firms Profit Growth
1.5 Economic Systems
1.5.1 Planned
1.5.2 Mixed
1.5.3 Market
2 Statements
2.1 Positive
2.1.1 Facts Can be tested
2.2 Normative
2.2.1 Opinions
3 Demand & Supply
3.1 Demand
3.1.1 Shifts Price of other goods Substitutes Compliments Compliments Joint Demand Change in consumer income Normal goods Inferior Goods Fashion Disposable income Interest Rates Legislation Population Exceptions Ostentatious Consumption Luxury items Speculative Demand Giffen Goods Highly inferior goods
3.1.2 relationship between buyers and suppliers
3.1.3 Types Latent Potential Derived Demand for X is linked to Y Composite More than one use Effective Supported by ability & willingness
3.2 Supply
3.2.1 The quantity of goods sellers are willing to sell at a given price
3.2.2 Types Actual Planned Joint Production of X leads to production of Y Cattle > Beef & Leather Competing Production of X is linked to production of Y Wheat/Biofuel
3.2.3 Shifts Increase in costs (CELL) Legislation Technology Productivity Subsidies Tax Ad Valorem VAT % tax Unit tax per unit
4 Markets
4.1 Equilibrium
4.1.1 Demand = Supply
4.1.2 Excess Demand Supply < Demand Price above equilibrium
4.1.3 Excess Supply Supply > Demand Price below equilibrium
4.2 Competitive
4.2.1 Large numbers of buyers/suppliers
4.3 Functions of price
4.3.1 Signalling Information
4.3.2 Incentive
4.3.3 Rationing Allocation
4.4 Specialisation
4.4.1 Benefits ^productivity ^output Lower Costs More competitive Growth
4.4.2 Limitations Workers alienated Regions may suffer if that industry declines
4.5 Production costs
4.5.1 Fixed Rent Salaries Insurance
4.5.2 Variable Raw materials Labour
4.5.3 Economies of scale As output rises costs decrease Then rise (dis-economies of scale) Internal Management Purchasing Financial Technical Marketing Risk bearing External Skilled labour pool development which benefits all firms Dis-economies of scale Alienation of staff Loss of communication Management issues
5 Elasticity
5.1 Supply
5.1.1 Types PES (%ΔQS)/(%Δ£)
5.2 Demand
5.2.1 Factors Price Price of other goods Income changes Type of good
5.2.2 Types PED (%ΔQD) / (%Δ£) XPED (%ΔQD of A) / (%Δ£ of B) Substitutes & Compliments YED (%ΔQD)/(%ΔY) Neccessities & Inferior Goods
5.3 PED>1
5.3.1 Elastic
5.4 PED>∞
5.4.1 Perfectly Elastic
5.5 PED=1
5.5.1 Unitary Elastic
5.6 PED<1
5.6.1 Inelastic
5.7 PED=0
5.7.1 Perfectly Inelastic
5.8 Revenue
5.8.1 Inelastic ^£ = ^Revenue
5.8.2 Elastic \/£ = ^Revenue
6 Market Failure
6.1 Types
6.1.1 Complete No supply
6.1.2 Partial Wrong quantity supplied
6.2 Public Goods
6.2.1 Non-excludability
6.2.2 Non-rivalry
6.2.3 Free rider problem
6.2.4 eg. Lighthouses
6.2.5 Quasi public goods eg. Toll roads It may be possible to exclude
6.3 Merit Goods
6.3.1 Goods that would be under-consumed (from desirable levels)
6.3.2 eg. Vaccinations
6.3.3 Demerit goods Goods that are over-consumed causing negative externalities eg. Alcohol
6.4 Monopolies
6.4.1 Pure No incentive to improve Prices may be artificially high High profits
6.4.2 Benefits/Costs Economies of scale R&D Price setters Barriers to entry Price > marginal loss
7 Externalities
7.1 Consumption
7.1.1 Negative MPB > MSB Tax applied lowers MSC meaning MSB=MSC @ MSB Q
7.1.2 Positive MSB > MPB Subsidy raises MSC meaning MSB is demanded
7.2 Production
7.2.1 Positive MPC > MSC Subsidy to raise MPC to MSC
7.2.2 Negative MSC > MPC Taxation to reduce MPC to MSC
8 Government Intervention
8.1 Pure public goods
8.2 Closing the intervention gap
8.3 Dealing with negative externalities
8.3.1 Regulation
8.3.2 Taxation
8.3.3 Pollution permits
8.4 Price controls
8.4.1 Price controls Price floors Price ceilings Buffer Stocks
8.5 Government Failure
8.5.1 Causes Inadequate Information Conflicting Objectives Administration costs Market Distortions
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