2 competativeMarkets Work Flashcards
Define resource allocation
The way in which a societies productive assets are used amongst their alternate uses
Explain the incentives on the behaviour of econ agents and resource allocation
In setting out good decisions, economic agents respond to incentives
Incentives aim to influence economic behaviour
E.g. Household realises the price of a good has fallen, it will purchase demand more - its cost has fallen relative to its benefit
Evaluate the effectiveness of incentives on the behaviour of econ agents and resource allocation
Influence based on traditional theory
However behavioural theory argues ..
Circumstances - state of the economy
How do market, planes and mixed economies allocate resources
Market- market forces guide allocation of resources
Planned - gov solely dictates
Mixed - market mechanism + government intervention to cure market imperfections
Advantages / disadvantage of mixed econ
Pros
- incentive for efficiency
- answers to coordination prob
- broad consumer choice
Cons
- monopoly power
- inequity
Planned pros
- low unemployment
- no risk of monopoly power
- equal distribution of wealth
Define maximisation
Traditional econ
Agents aim to maximise their utility (satisfaction/happiness/wellbeing)
Act rationallly - make decision best for themselves
Objectives of economic agents
Government Increase GDP Decrease unemployment Equilibrium in the BOP Inflation under 2%
Households
Labour force -maximise income whilst attaining satisfactory amount f free time
Consumers- max satisfaction consumption of goods
Firms - maximise profit / breakeven/ invest/expand/monopoly/Dina goal stability to achieve ethical objectives
Evaluate the different objectives of economic agents within an economy
State objectives maximising utility / rational
Behavioural economics... Computation weaknesses Info failure Anchoring Bounded rationality
Define market
A set of arrangers that allows transaction to take place
Sub markets
Smaller markets within a market e.g. Labour market consists of doctors/teachers/mechanics
Relationship between individual and demand
Population Advertisement Substitutes Income Fashion Ion treat rates Compliments
Demand form a firm or household
Derived demand
Demand for a commodity which is a convenience of demand for another
Joint demand
Demand for goods that are interdependent, such that they are demanded together
Composite demand
Demand for a good that has multiple uses
Competitive demand
Demand for rivalry goods e.g. Substitutes
Difference between a movement along the demand curve (extension /contraction ) and a shift
An extension/ contraction is when price decreases/ increases
A shift is influenced by PASIFIC
Explain with a diagram consumer surplus
It’s in the Photo album
Evaluate the impact of changes in price on consumer surplus
An increase in price creates a fall in consumer surplus, a decrease - a rise
Draw diagram
E.g. From e1-e2 less consumers are willing and able to buy a product this the surplus falls.
However in the whole curve shifts this fall in surplus may be restored
