California Southern University

What are the four assumptions of micro economics? Rational Consumers, perfectly competitive market, average consumer, ceteris paribus What is a positive statement? a statement that can be tested and validated What is a normative statement? an opinion, a value judgement What is the economic problem? Resources are scarce, however wants are unlimited. There are finite resources so goods/services need to be allocated efficiently. What is opportunity cost? Cost of the next be...

Macroeconomics The study of the economy as a whole, including inflation, growth and unemployment. Aggregate demand The total amount of goods / services demanded in an economy at a given time at a given price level. Aggregate supply Total amount of goods and services supplied in the economy at a given time at given price level. What is GDP? Gross Domestic Product = the total value of all goods and services produced in an economy in a given time period. What does % ...

1.1.1 - The Economic Problem The basic economic problem Scarcity - unlimited wants and finite resources, so choices have to be made. Resources have to be used and distributed optimally. Scarcity refers to the shortage of resources in relation to the quantity of human wants. Scarcity Example For example, if you only have £1 and you go to a shop, you can buy either the chocolate bar or the packet of crisps. The scarcity of the resource (the money) means a choice has to be made bet...

Globalisation Increased interdependence between countries and the rapid rate of change it brings about Factors contributing to globalisation (5) Improvements in infrastructure (Quicker, more reliable and cheaper methods enabling production) Improvements in IT and communication (Allows global operations) Trade Liberalisation (Reduces protectionism and makes trade cheaper - specialisation) International financial markets (Raising money and transferring it globally) TNCs (Low p...

Factors influencing demand for labour Demand for final product - if rise in output > increase in productivity Relative productivity of labour to capital - substitution effect £3,000 subsidy for hiring unemployed 18-24 y.o. = half UK's youth minimum wage Factors influencing supply of labour Cost of living Cost of gaining skills UK uni fees capped at £9,250 per year Number of workers UK raises state pension age from 67 to 68 Market failures in labour markets Geograph...

Production Possibility Frontier Supply and demand diagram showing equilibrium Supply and demand surplus Increase in demand Decrease in demand Increase in supply Decrease in supply Consumer surplus Producer surplus Inelastic demand Elastic demand Unitary elastic demand Perfectly elastic demand Perfectly inelastic demand Inelastic supply Elastic supply Substitutes diagram Ad valorem tax Tax diagram Subsi...

Macroeconomics The study of the economy as a whole, including inflation, growth and unemployment. Aggregate demand The total of all demands or expenditures in the economy at any given price. Aggregate demand curve Shows the relationship between the price level and equilibrium national income. As the price level rises the equilibrium level of national income falls. Animal spirits Business confidence: the mood of managers and owners of firms about the future of their indus...

Microeconomics The study of individuals, markets, firms and industries. Focuses on the details of small-scale components within the economy. Macroeconomics The study of whole economic systems: national economies and the global economy. Looks at the whole economy on a large scale. Standards of Living (SoL) The quality of life enjoyed by people. This comprises material aspects (i.e. how much people are getting of the things they want and need), and non-material aspects (i.e. how healt...

scarce resources resources that are limited or finite opportunity cost the value of the next best alternative forgone economic problem resources are scarce but wants are unlimited production possibility frontier a diagram that shows all the combinations of two goods that can be produced when all factors of production are being used normative statement an economic statement based on a value judgement and therefore cannot be tested positive statement an eco...

Backwards vertical integration a joining together into one firm of two or more firms where the purchaser merges with/takes over one or more of its suppliers Conglomerate integration a joining together into one firm of two or more firms producing unrelated products Demerger when a firm splits into two or more independent businesses Divorce of ownership from control when managers and directors of a business are different from the owners of a business (the shareholders) ...