Externalities

Definition: An effect whereby those not directly involved in taking a decision are affected by actions of others

When you are the third part, you're just effected by the world around you, and not involved in the decision.

Ex: Teacher learns a student to be very good in philosophy, that gets other people the student associate with, to think in a more philosophic way. Ergo: you are affected by what the student learnt from the teacher.

Costs and benefits

• Private- costs and benefits: Individuals directly involved in the decision to take a particular action, eighter as producers or consumers. The cost is incurred by when the individuals are taking a action. The benefits coming to the individuals who takes a particular action. Ex: A good/service payd by an individual.

• External- costs and benefits: consequences that falls on the third part. The costs are the consequences that happen to the third part. The benefits are the externalities to the third part. Ex: Noise problems.

• Social- cost and benefits: The total costs and benefits of a particular action.

Negative externalities

Definition: This exist where the social cost of an activity is reater than the private cost.

Examples:

• Illegal dumping of waste: The private cost to dumping is minimal. The external cost has to be covered by those such as local councils, responsible for maintaining the environment.

• Drinking: The private cost is the cost of what you drink and how sick you get. The external cost is the police who have to stand guard for you, and the the companyes which is cleaning the streets.

The problem with positive externalities is that there is under-production of Q and Q1, with too few scarce resources are being used. Therefore the market has hailed.

Positive externalities

Definition: This exist where the social benefit of an activity exceeds the private benefit.

Examples:

• Education and training: The private benefits is that you get improved skills, and get a better payd and more intressting job. The external benefits are that you get better qualified emplyees for firms, and in a long term, cmpetitiveness for the economy for the country.

• Crossrail: The private benefit is that everything is going to go faster. The external benefit is that the project will reduce road traffic, reducing overcrowding.

The problem with negative externalities is that there is overproduction of Q and Q1, and the price paid is lower than it should be. Therefore, the market has failed because of allocative inefficiency.

Elasticity

Every time Chris say “Elasticity” your answer should be “Responsiveness”

The definition you read in your book says that elasticity is the extent to which buyers and sellers respond to a change in market conditions.

When the price is elastic, the percent change in the demand is sensitive to a change in price, when this allows to that the consumers choose a alternative(substitute) product.

Inelasticity:

The price is inelastic when the percentage change in the quantity demanded is insensitive to a change in price.

Example: Oil

The formulas:

• Price elasticity of demand(PED) is the responsiveness of the demand to a change in the price of the product.

%change quantity demanded / %change in price

• If PED = 0 then demand is perfectly inelastic.

• If PED is between 0 and 1, then demand is inelastic.

• If PED = 1, then demand is unit elastic

• If PED > 1, then demand is elastic

• Price elasticity of supply(PES) is the responsiveness of the quantity supplied to change in the price of the product:

%change quantity supplied / %change in price

• When PES is > 1, then supply is price elastic

• When -1 PES is <1,>

• When PES = 0, supply is perfectly inelastic

• When PES = infinity, supply is perfectly elastic following a change in demand

• Cross elasticity of demand(XED) is the responsiveness of demand for one product in relation to change in the price of another product:

%change in quantity demanded of a product A / %change in price of a product B

• When XED is >0, gives substitutes goods

• When XED is <0,>

• Income elasticity of demand(YED) is the responsiveness of demand to change in income:

%change in quantity demanded / %change in income

• Normal goods: >0, positive

• Inferior good: <0,>

Sources:

• OCR Economics AS

• http://www.tutor2u.net/economics/revision-notes/index.html

Supply & Demand

Supply and demand is a basic economic consept(which I should be able to know what is, and how to put it in too a diagram...) and an important part of the market economy(=economic system whereby resources are allocated through the market forces of demand and supply.)

The prices of goods and services are influenced by how much the producers are willing and able to produce, and how much the costumers are willing and able to pay.

Definition of demand: the quantity of a product that consumers are able and willing to purchase at various prices over a period time.

The law of demand says that the price will decrease/increase along with demand.

The national demand, costumers wants which refers to the taste, preferences, etc, and effective demand, the ability they have to pay, make the curve of demand.

Demand curve is based on data, calld demand schedule. These data the companyes gathering over time, for exby checking how much of a product they sold to a particular price, asking the costumers what they think about the price, if they could pay more or less, and why, etc.

The price of a product falls we will buy more, which results in an increase in the quantity demand. On the other hand, if the price of a product goes up, quantity of demand dalls, and the only cause is the change in the price of the product. These changes are referred to as movement along the demand curve, which means that a change in a non-price factor leads to an increase factor leads to an increase or decrease in demand for a product.

Consumers supply is how much more extra the costumers are willing to pay over the market price of a product. Higher price → less consumers.

The change in te curve I sbecause of consumers income, the prices of other products and tastes and fashion.

Definition of supply: the quantity of a product that producers are willing and able to provide at different market prices over a period of time.

The law of supply tells us that for a higher quantity the producer will produce more, because they are willing to afford more to a higher price-> revenue increases.

Supply in the market is decided by the producers: to satisfy the consumers, and to make profit.

The therm can be defined as the quantity of a product a producer is willing and able to produce at different market prices.

The factors of production(land, labor, capital, entrepreneurship) has to be used thoughtfully. These, so the company get maximum profit.

For example: a firm produce mobile phones, and they need: emplying skilled labour, producting at a suitable location, the business skills and contact to survive, and the assembly of components and parts.

The supply curve, is the realationship between price and the quantity of a product that is supplied.

An example for how the curve is, “When the price of a product/service increases, the quantity supplied increases.” These is caused by that when the company got more money from the production, they are able to produce more.

Supply schedule, data set which show how much of a product is supplied over a range of prices.

Past records may help the firms, but in the end it's up to you, as a consumer.

Producer surplus is the willingness a firm have to produce for selling products/services under the market price.

The curve changes because of the size and nature of an industry, and government policies and changes in the cost of the production etc.

Price is important for suppliers and costumers. “The price of any product is determined by demand and supply” this is called equilibrium.

Substitutes(competing goods) and compliments(joint demand)

The demand of a substitude goods depends on the price. If a good, A, costs more than another good, good B, of this type, the costumers will choose to buy the cheapest one, B. Which means that B will experience a increase in demand.

The demand of compliment goods, depends on the price of them both, because they belong toether. Ex: Bread and butter, steal and train etc.

So if the price for, for example, steal goes up and the demand will decrease, there will be more expensive to build trains.