These notes provide a full and in-depth overview of all the topics covered under AQA A-level Paper 1 topic Market Failure. I made these notes whilst studying for my A levels and achieved an A*. This document includes both notes taken in class, as well as during an additional revision course I priva...
, THE PRICE MECHANISM (THE INVISIBLE HAND) (the determination of equilibrium market prices
(y)
·
Eg. INCREASE IN DEMAND income increases
- demand increases >
given
consumers able to
buy at each
-
price
kept price the same with demand increased
·
priceD D
, Si if firm -
left excess >
-
demand has ,
supply has
-
changed in disequilibrium demand
-
not market now
greater than
supply
↳
P
, o- - - - - - signal from the market to supply more >
-
firms increase incentive to produce by
-----
-
· ..
P
,
increasing price ->
they would not be able to produce any more products at price
so it is a movement ALONG the
supply curve
.
increase in decrease in
·
simultaneously to demand - there is a demand people
9uantity
-
>
Q Qd
willing and able to called CONTRACTION -
demand this
are less
buy- of >
RATIONING and continue until
process of increasing price the demand
decreasing will
there is no
longer a signal
·
the market is back in equilibrium at higher price (P , and Q1)
INCREASE IN SUPPLY
Eg
·
2
. increase in new
machinery
-
supply increases >
-
firms more able and willing to
D
price S
Si
produce at
every given price.
if firm kept price the same -> left with excess
supply
->
Supply has greater,
demand has not -
changed market now in disequilibrium
:
↳ reduces incentive
signal from reduce price firms produce
>
market to the to to
by
-
decreasing price price P
,
->
they are less able and
willing to
supply at the lower ,
-
down and
quanting movement
along the
supply curve .
simultaneously decrease in price the demand increases
·
to >
- ->
consumers are
willing called expansion of demand
more able and to
buy products-
>
↳ demand
this
rationing process of decreasing price and the
increasing will
continue until there is no
longer a
signal
the market is back in equilibrium at lower price (P , and Q1)
Eg3 DECREASE IN DEMAND
a demand
change in taste decrease in consumers less able
>
of consumers
- a -
P S and
price p ,
willing to
buy products
if firm kept price is
with
supply
>
the same -
left excess
supply
-
greater than
demand
-> market now in disequilibrium
:
↳
signal from the market to reduce the price -> > less incentive for firms to
produce by decreasing price - less able and
willing to produce at a lower price
,
quantity P - movement down and
along the supply curve
demand increases
simultaneously
·
to decrease in price
-> the - consumers
demand
are more
willing and able to
buy - expansion of
↳
this
rationing process decreasing Price so demand increases will continue until
there is no
longer a
signal.
Eg 4 ·
the market is back in equilibrium at lower price (P , and Q ,)
DECREASE IN SUPPLY
Si
·
D S in
price increase workers wages decreases supply firms are less
willing and able
->
an >
-
to produce at
every given price
:
if firm kept price the same left with excess demand demand greater than
supply
>
- >
-
↳ market now in disequilibrium >
signal is sent to firms to increase price so there becomes
-
-
incentive and able
more of an to produce by increasing price -
they are more willing to produce.
Creates
quantity a movement up and along the supply curve
.
demand decreases
simultaneously willing
>
to an increase in price consumers are less and
-
>
-
products demand
.
able to
buy - contraction of
↳
this
rationing process of increasing price so
supply increases will continue until there is
no
longer a
signal from the market
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller eviederbyshire0. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.14. You're not tied to anything after your purchase.
