‭Ch 1: Basic Economic Problem:‬

‭ oods‬‭: are things produced in order to be sold‬

G
‭Finite resources‬‭: resources such as water, oil etc.‬‭These resources are limited or‬‭finite‬‭in‬
‭amount.‬
‭Needs‬‭: Basic requirements for human survival‬
‭Wants‬‭: People’s desire for more goods and services‬

‭The problem arises, that we humans have:‬

‭Infinite wants (demand),‬

‭But,‬
‭Have finite or limited resources‬

‭Thus, demand is greater than supply‬

‭ his is the basic economic problem that all countries face as people have: infinite wants but only‬
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‭limited resources, this causes a problem of allocating resources‬

I‭nfinite Wants‬ ‭‬
> ‭ inite Resources‬
F
‭(Demand)‬ ‭>‬ ‭(Supply)‬

‭Basic economic problem:‬

‭●‬ ‭What to produce?‬
‭○‬ ‭What products should be manufactured as a country cannot manufacture‬
‭everything‬
‭●‬ ‭How to produce?‬
‭○‬ ‭What production methods are to be used for making the goods‬
‭●‬ ‭For whom to produce?‬
‭○‬ ‭Method of distribution‬

‭ llocation‬‭: Decide officially the amount of money,‬‭capital, and time that should be used for a‬
A
‭particular product‬
‭Distribution‬‭: the act of sharing things among a large‬‭group of people in a planned way‬

‭Opportunity Cost:‬‭it is the cost of the next best‬‭option given up, for example‬
‭You have 150 takas, there are three items‬
‭●‬ ‭Item A - Price 150 Taka‬
‭●‬ ‭Item B - Price 140 Taka‬
‭●‬ ‭Item C - Price 100 Taka‬
‭Suppose you have chosen to buy Item A at 150 Taka, your opportunity cost is Item B and C as‬
‭they are the next best option given up‬
 ‭●‬ ‭Goods: are products produced in order to be sold,‬
‭○‬ ‭Capital Goods: goods purchased by firms to produce other goods or to be used‬
‭in further production such as machinery‬
‭○‬ ‭Consumer Goods: goods purchased by households such as cars, furniture‬
‭●‬ ‭Deciding upon which goods to produce opportunity cost can be portrayed using the‬
‭Product Possibility Curve (PPC)‬
‭Normally, on the Y axis, we show consumer goods and on the X axis capital goods. The curved‬
‭line represents the amount of resources available. Each and every point on the curve‬
‭represents a production possibility, If we have 16 of Y we can have 5 of X, and if we have 18 of‬
‭X we can have 9 of Y. Any point beyond the curve is not a possible production possibility as it‬
‭exceeds the curve meaning we do not have that many resources any point below the curve not‬
‭touching it is‬‭inefficiency‬‭as not all resources are‬‭being used. Point A in the Fig below‬
‭represents inefficiency whilst Point C represents an‬‭unattainable‬‭production possibility.‬

‭Fig of PPC for Inefficiency (Point A) and unattainable‬‭(Point C)‬

‭●‬ I‭f we want to increase the curve, we have more resources to be able to produce more,‬
‭we must have‬‭economic growth‬‭, for which we need:‬
‭○‬ ‭New technology‬
‭○‬ ‭Improved efficiency‬
‭○‬ ‭Education and training‬
‭○‬ ‭New resources‬
‭ his can be represented by the following figure:‬
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‭ owever, there can be‬‭negative economic growth‬‭, where‬‭instead of the PPC curve shifting‬
H
‭outwards it shifts inwards representing negative economic growth.‬

‭Ch 2: Economic Assumptions‬

‭ hen making economic decisions we can accept the fact that that most people will behave and‬
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‭make those decisions in a‬‭rational‬‭manner, with rational‬‭meaning based on clear thought or‬
‭reason‬

‭Consumers:‬
‭When making economic decisions consumers will always try to maximise benefits and‬
‭follow a course that will give them the greatest satisfaction, this is the rational‬
‭assumption about consumers.‬
‭●‬ ‭When faced with buying the two same products, consumers will buy the cheapest‬
‭product, for example, one litre of oil somewhere costs 130 Taka and somewhere‬
‭else oil being sold at 126 Taka, consumers in order to maximise benefit and‬
‭satisfaction will buy the latter with 126 taka.‬
‭●‬ ‭If the consumer has the option to buy from three shops, the same product, they‬
‭will buy the product with the best quality‬
‭Businesses‬
‭When making an economic decision businesses will follow a course that allows them to‬
‭maximise their profit, this is the rational assumption about businesses.‬
‭●‬ ‭If a business owner is to buy raw materials from three suppliers, he will buy the cheapest‬
‭one given that the quality is the same‬
‭●‬ ‭When a business is pricing its products it will always choose the highest price the market‬
‭allows thus maximising revenue and profit‬

‭Consumers unable to maximise benefit:‬

‭In some scenarios, consumers may be unable to maximise profits for the following‬
‭reasons:‬
‭●‬ ‭Customers facing difficulties in calculating benefit‬
‭●‬ ‭Buying habits of customers such as being loyal to one brand‬
‭●‬ ‭Influenced by others‬

‭Businesses unable to maximise profit:‬

‭In some scenarios, businesses are unable to maximise profit for the following reasons:‬
‭●‬ ‭Sometimes business owners delegate their work to others, meaning giving others parts‬
‭of their work, those exact people receive commissions on how much they sell‬
‭●‬ ‭Alternative business objectives‬
‭●‬ ‭Humanitarian or charitable objectives‬
‭Ch 3: The Demand Curve‬

‭ emand is the number of goods that will be bought at a certain given price, with effective‬
D
‭demand showing how much would be bought at any given price as people have the ability and‬
‭desire to purchase it‬

‭Demand and price have an inverse relationship,‬

‭ rice decreases, Demand increases‬

P
‭Price increases, Demand decreases‬

‭Price and quantity demand share an increased relationship due to the rational nature of‬
t‭he consumer wanting to maximise benefit, meaning more people are willing to buy the product‬
‭at a lower price than they are at a higher price.‬

‭ rice changes cause movements along the demand curve meaning, movements along‬
P
‭the demand curve are the change of quantity demand due to price changes,‬

‭Here, we can observe movements along the demand curve, if the product were priced at‬
‭ 0 then Quantity demand would be 5, however, if it were priced at 10 quantity demand would be‬
2
‭10. This shows movement along the demand curve, changes in quantity demand caused by‬
‭price changes.‬

‭Ch 4: Factors that shift the demand curve‬

‭ e have seen movement along the demand curve, which is changes in demand due to price‬
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‭changes, however, shifts in the demand curve are different. The price of goods remains the‬
‭same however quantity demand for those goods changes‬
‭ he shift of the demand curve to the right from D0 to D2 indicates an increase in demand‬
T
‭The shift of the demand curve to the left from D0 to D1 indicates a decrease in demand‬

‭Factors that shift the demand curve:‬

‭●‬ ‭Advertising: Businesses can try to influence people into buying their products through‬
‭advertisement, thus increasing demand without having to change the prices‬
‭●‬ ‭Income: an increase in income allows for people to have disposable income, meaning‬
‭money left after taxes, and other expenses. Thus people will buy normal goods,‬
‭○‬ ‭Normal goods: Good for which demand and price share a directly proportional‬
‭relation, thus‬
‭■‬ ‭Income Increases, Demand Increases‬
‭■‬ ‭Income Decreases, Demand Decreases‬
‭○‬ ‭Inferior goods: goods for which demand and price share an inverse relationship‬
‭■‬ ‭Income Increases, Demand Decreases‬
‭■‬ ‭Income Decreases, Demand Increases‬
‭●‬ ‭Fashion and tastes: Trending tastes and changes in fashion people are capable of‬
‭shifting the demand curve, such as the current narrative of the decline of skinny jeans‬
‭causing a shift in the demand curve to the left, however for lose fitting jeans have‬
‭become a popular fashion taste and thus has experienced a shift in the demand curve to‬
‭the right, meaning increasing demand.‬
‭●‬ ‭Price of Substitutes: The price of substitutes of products is capable of shifting the‬
‭demand curve for the product, such as‬
‭○‬ ‭Coke if priced at 20 Taka compared to Pepsi priced at 15 Taka will see a shift in‬
‭the demand curve of Coke to the left as consumers will buy Pepsi.‬
 ‭●‬ P ‭ rice of Compliments: Complimentary goods are goods that are meant to be consumed‬
‭together such as tea and milk, the prices of either good are able to shift the demand‬
‭curve for the other complementary good‬
‭○‬ ‭For example, Tea and Milk are complimentary goods meant to be consumed‬
‭together if the price of milk were to increase, the demand curve for the‬
‭complimentary product, tea, would naturally shift to the right.‬
‭●‬ ‭Demographic changes: Products may face shifts in the demand curve due to the‬
‭changing demography of a nation:‬
‭○‬ ‭A nation such as Japan, in which the elderly account for a large part of the‬
‭demography will naturally see a shift in the demand curve to the right for‬
‭products such as healthcare, medicines and things the elderly require daily‬

‭Ch 5: The Supply Curve‬

‭ upply is the amount of goods that the seller is willing to sell at any given price. Supply‬
S
‭and price share a directly proportional relationship,‬
‭Price Increases, Supply Increases‬
‭Price Decreases, Supply Decreases‬

‭ his relation between price and supply is directly proportional as suppliers will naturally‬
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‭want to sell more at higher prices as it maximises revenue, however, suppliers will decrease‬
‭their supply as a result of decreasing prices.‬

‭Supply changes caused by price changes are called movement along the supply curve.‬
‭However, changes in supply without price changes lead to shifts in the supply curve‬
‭Ch 6: Factor that Shifts the Supply Curve‬

‭ h 7‬
C
‭Ch 8‬
‭Ch 9‬

‭Ch 10: Income Elasticity‬

I‭ncome elasticity of demand or YED: is the responsiveness of quantity demand to price changes‬
‭Income elasticity of supply or YES: is the responsiveness of quantity supply to price changes‬

‭Let income be I,‬

‭ aturally, if income increases demand will decrease for products as people will want more due‬
N
‭to the increase in their incomes thus:‬

I‭ncome increases, Qd Increases‬

‭Income decreases, Qd decreases‬

‭YED= change in Qd / % change in income‬

I‭f YED, x>1 it is income elastic‬

‭If YED, X<1 it is income inelastic‬

‭●‬ ‭Necessity:‬
‭○‬ ‭Essential or Necessary‬‭goods will always be‬‭income‬‭inelastic‬‭, meaning a‬
‭change in income does not cause much change in the quantity demanded of‬
‭those products. These products are essential to survival such as water, food and‬
‭medicines.‬
‭○‬ ‭Non-essential‬‭goods will always be‬‭income elastic‬‭,‬‭meaning a change in‬
‭income causes a larger change in the quantity demanded of these products,‬
‭some examples may be electronics and jewellery.‬
‭●‬ ‭Luxury goods:‬‭Elastic‬‭, if‬
‭○‬ ‭Income increases, Qd increases‬
‭○‬ ‭Income Decreases, Qd decreases‬
‭●‬ ‭Normal goods:‬‭Elastic‬‭, if‬
‭○‬ ‭Income increases, Qd increases‬
‭○‬ ‭Income decreases, Qd decreases‬
‭●‬ ‭Inferior goods:‬‭Inelastic‬‭, if‬
‭○‬ ‭Income increases, Qd decreases‬
‭○‬ ‭Income decreases, Qd increases‬
‭Price Elasticity and Business:‬
‭●‬ ‭Changes in income may‬‭affect the Qd and total revenue‬‭of firms‬
‭●‬ ‭If firms know the income elasticity of their products they can respond to predicted‬
‭changes in income‬
‭●‬ ‭YED = % change in Qd / % change in income‬
‭○‬ ‭2 million units sold, with a price increase from $20 to $21‬
‭○‬ ‭If YED = -0.8‬
‭○‬ ‭-0.8= % change in Qd / 5%‬
‭○‬ ‭% change in Qd = -0.8‬× ‭5%‬
‭○‬ ‭% change in Qd = -4%‬
‭○‬ ‭Previous demand = 2,000,000‬
‭○‬ ‭2,000,000 - (4%‬×‭2,000,000)‬
‭○‬ ‭=1,920,000‬
‭○‬ ‭Change in Total Revenue‬
‭■‬ ‭$20‬‭‬ × ‭2,000,000 = $40,000,000‬
‭■‬ ‭$21‬× ‭1,920,000 = $40,320,000‬
‭●‬ ‭Price Elasticity & Govt‬
‭○‬ ‭Indirect taxes:‬
‭■‬ ‭Revenue raised by taxes such as VAT and excise duty‬
‭■‬ ‭Govts mainly place such taxes on inelastic goods or goods that have few‬
‭substitutes but do not target goods essential to survival‬
‭■‬ ‭Popular targets for such taxes are cigarettes and alcohol as demand for‬
‭these products is inelastic‬
‭○‬ ‭Subsidies:‬
‭■‬ ‭Govts can consider YED when giving subsidies to producers as they can‬
‭shift the supply curve to the right‬
‭■‬ ‭These are mainly given to inelastic goods, to help poor people. But‬
‭demand must be price inelastic otherwise there would be an increase in‬
‭supply which will only cause a small change in price‬

‭Ch 11: Mixed Economy‬

‭Economy‬‭-is a system that attempts to solve the basic‬‭economic problem‬

‭Types of Sectors:‬
‭1.‬ ‭Private Sector‬
‭a.‬ ‭Owned and controlled by an individual or group of individuals‬
‭i.‬ ‭Solo traders - Owned and controlled by one person‬
‭ii.‬ ‭Partnerships - Controlled and owned by two or more people‬
‭iii.‬ ‭Companies - Shareholders own the business, electing a board of‬
‭directors to run the business on their behalf‬
‭b.‬ ‭Aims:‬
‭i.‬ ‭Survival - To establish a business‬
 i‭i.‬ ‭Profit maximisation - Make the maximum amount of profit‬
‭iii.‬ ‭Growth - Expansion of business‬
‭iv.‬ ‭Social Responsibility‬
‭2.‬ ‭Public Sector:‬
‭a.‬ ‭Owned and controlled by either central or local government departments,‬
‭state-owned enterprises (SEOs)‬
‭i.‬ ‭All assets and liabilities are possessed by the state‬
‭b.‬ ‭Aims:‬
‭i.‬ ‭Improve the quality of services‬
‭ii.‬ ‭Minimise costs‬
‭iii.‬ ‭Allow for social costs and benefits‬
‭iv.‬ ‭Profits are rarely seen, an example being Emirates Airlines‬

‭Types of Economies‬
‭1.‬ ‭Market or Free Economy: Almost all goods and services are provided by the private‬
‭sector. The allocation of resources is dictated by the market factor of supply and‬
‭demand. Only a few state services such as foreign policy, defence, policing and‬
‭judgement are part of the public sector. Examples - Singapore, Japan‬

‭2.‬ P
‭ lanned Economy: Relies entirely on the public sector to choose, produce and allocate‬
‭goods, services and resources. All resources belong to the state. Examples - Cuba,‬
‭DPRK‬

‭3.‬ M
‭ ixed Economy: Relies both on public and private sectors to provide goods and‬
‭services. The majority of state services are operated by the public sector to improve‬
‭quality and decrease the price for people, ex- water, hospitals and schools.‬
‭a.‬ ‭What to produce:‬
‭i.‬ ‭Consumer goods are best made by the private sector, ex- clothes, and‬
‭household securities‬
‭ii.‬ ‭Other goods such as education and healthcare are provided by the state‬
‭b.‬ ‭How to produce:‬
‭i.‬ ‭The private sector will have the goal of profit,‬‭competition‬‭exists‬
‭between these firms to produce goods giving customers variety and‬
‭options‬
‭ii.‬ ‭The public sector will provide services and sometimes will outsource the‬
‭services to private-sector contractors‬
‭c.‬ ‭For whom to produce:‬
‭i.‬ ‭The private sector will sell to anyone who‬‭can afford‬‭it‬‭, and the market‬
‭system of demand and supply is responsible for their distribution‬
‭ii.‬ ‭The public sector will provide goods and services for free to anyone as‬
‭these are funded by taxes‬

‭Market Failure:‬
‭●‬ ‭Externalities‬‭: Imposition of costs on society such‬‭as pollution or poor air quality‬
 ‭●‬ L ‭ ack of Competition‬‭: Markets can become dominated by one or a few small numbers‬
‭of firms, these dominant firms may‬‭exploit‬‭customers‬‭by charging higher prices and the‬
‭customer would have no other choice as they cannot switch to other options due to lack‬
‭of lack substitutes caused by‬‭monopolisation‬‭.‬
‭●‬ ‭Missing Markets:‬‭Some goods and services such as public‬‭goods are not supplied by‬
‭the private sector. Merit goods such as education and healthcare are unprovided as‬
‭people cannot even afford due to private firms prioritising profits‬
‭●‬ ‭Factor Immobility‬‭: For a market to work efficiently,‬‭factors of production need to be‬
‭mobile meaning factors such as labour and capital need to be able to be moved from‬
‭one usage to another. But if factors can be immobile.‬
‭●‬ ‭Lack of Information‬‭: Free flow of information is required‬‭for buyers and sellers for the‬
‭market to be efficient, without information, it may result in the wrong goods being‬
‭purchased or produced and the wrong prices being paid.‬

‭How Governments Can Prevent Market Failure:‬

‭1.‬ ‭Imposing Regulations‬‭and fining businesses for externalities‬
‭2.‬ ‭Legislation‬‭to prevent monopolies from forming‬
‭3.‬ ‭State money is used to buy public and merit goods for people, which are later provided‬
‭for free‬
‭4.‬ ‭Forcing firms to provide‬‭information‬‭through legislation‬
‭5.‬ ‭For factors of production to become‬‭mobile, the‬‭government‬‭can offer retraining to‬
‭workers when their work has become redundant but little can be done about machinery‬
‭as they specialised to be efficient at a specific task‬

‭Characteristics of Pubilc Sectors‬

‭●‬ ‭Non-excludability: When goods and services are provided by the public sector, nobody‬
‭can be excluded from using the services and goods for free and cannot refuse‬
‭consumption by consumers‬
‭●‬ ‭Non-rivalry: Consumption of public goods by an individual cannot reduce the amount‬
‭available to others‬

‭Ch 12: Privatisation‬

‭●‬ ‭What is privatisation?‬

‭○‬ ‭Privatisation involves the transferring of ownerships of public industries,‬
‭resources and, sale of nationalised industries, contracting out and selling land‬
‭and property‬
‭●‬ ‭Nationalised industries were previously private corporations, but are now public sector‬

‭Why does nationalisation take place?‬

‭1.‬ ‭To generate income‬‭: through the sale of state assets‬‭and further through shares that‬
‭may be owned in the now privatised companies‬
 ‭2.‬ P ‭ ublic sector organisations were too inefficient‬‭: Some public industries lacked‬
‭incentives to make a profit and thus often made losses. Thus, they were sold to the‬
‭private sector as they would’ve reduced costs by laying off workers, improving services‬
‭and returning profits to shareholders‬
‭3.‬ ‭To reduce political interference‬‭: In the private sector,‬‭the government could not use‬
‭these organisations for political aims‬

‭What are the effects of privatisation on:‬

‭1.‬ ‭Consumer‬
‭a.‬ ‭Initially‬‭, the business will be efficient in providing‬‭good quality goods and‬
‭services and lower their prices to increase demand‬
‭i.‬ ‭Good quality‬
‭ii.‬ ‭Lower prices‬
‭iii.‬ ‭Growing demand‬
‭b.‬ ‭But after some time‬‭, private investors who are profit-oriented‬‭will incentivise‬
‭profit, people will be charged higher prices and quality may decrease. *Private‬
‭investors will always maximise profit*‬
‭2.‬ ‭Workers‬
‭a.‬ ‭To reduce costs, people are made redundant and sacked leading to‬
‭unemployment‬
‭b.‬ ‭Loss of experienced workers and staff may cause scaling up to be a hard task‬
‭3.‬ ‭Business‬
‭a.‬ ‭Now the industry is without a government and must face competition‬
‭i.‬ ‭Profits are now the top priority‬
‭ii.‬ ‭Increased investment following privatisation‬
‭iii.‬ ‭Mergers and takeovers of newly privatised firms‬
‭iv.‬ ‭Diversified into new areas‬
‭4.‬ ‭Government‬
‭a.‬ ‭Revenue generated from the sale‬
‭b.‬ ‭Revenue from taxation‬
‭c.‬ ‭Privatisation is expensive for the government due to taxpayer money used on‬
‭advertising‬
‭d.‬ ‭Sometimes assets are sold too cheaply‬
‭e.‬ ‭Govts can now focus on governing‬
‭f.‬ ‭Previously state-owned corporations now private may be subject to hostile‬
‭takeovers‬

‭Ch 13: Externalities‬

‭ xternalities are costs imposed or effects endured by the‬‭third parties‬‭through the consumption‬
E
‭or production of goods by the‬‭first party‬

‭ irst Party‬‭- refers to those‬‭directly‬‭involved in‬‭the production or consumption of goods or‬

F
‭services‬
‭Third-party -‬‭refers to those‬‭not directly‬‭involved‬‭in the consumption or production of goods or‬
‭services but are affected by others consuming it‬

‭Externalities are spillover effects caused to the third part by the first party‬

‭There are two types of externalities:‬

‭1.‬ ‭Cost‬
‭2.‬ ‭Benefit‬

‭1.‬ ‭Cost:‬
‭a.‬ P ‭ rivate cost: endured by 1st part, via the consumption or production of goods‬
‭ex-labour costs‬
‭b.‬ ‭External costs: endured by the 3rd part caused by other consuming goods‬
‭ex-pollution, noise‬
‭c.‬ ‭Social Cost: PC + EC, the cost to all of society‬
‭2.‬ ‭Benefits‬
‭a.‬ ‭Private benefits: received by the first part via the direct production or‬
‭consumption of goods and service ex-revenue, profits‬
‭b.‬ ‭External benefits: received by the third party by others consuming or producing‬
‭goods and services‬
‭c.‬ ‭Social benefits: PB + EB, overall benefit received by society‬

‭If,‬
‭ B>SC - Social and Economic Development‬
S
‭SB<SC - Social and Economic Collapse‬

‭ hat are the external benefits of consuming the following, as in what are the benefits to‬
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‭others (third party) if you (first party) consume the following‬
‭1.‬ ‭Education:‬
‭a.‬ ‭Private Benefit: First party, the student, goes to school, or university, gets‬
‭educated and skilled and gets a job‬
‭b.‬ ‭External Benefits: The third part, wider society, benefits as a skilled job increases‬
‭productivity and the standard of living of the economy‬
‭2.‬ ‭Healthcare:‬
‭a.‬ ‭Private Benefit: Healthier, live longer and can return to work faster‬
‭b.‬ ‭External Benefit: Third party, wider society benefits since the first party returns to‬
‭work quicker thus increasing economic output and taxes are paid‬

‭3.‬ ‭Vaccinations:‬
 ‭a.‬ P ‭ rivate Benefit: First-party benefits as they will have protection against infectious‬
‭diseases‬
‭b.‬ ‭External Benefit: Third party, wider society benefits as there will be uninterrupted‬
‭economic output and less likely chances of diseases spreading making people‬
‭unable to work‬

‭How governments can deal with externalities:‬

‭1.‬ ‭Taxation‬
‭a.‬ ‭Governments can put taxes on those firms that produce externalities to prevent‬
‭them‬
‭b.‬ ‭Taxes can be imposed on products such as cigarettes that are harmful to‬
‭consumers thus stopping consumers from buying them‬
‭2.‬ ‭Subsidies‬
‭a.‬ ‭Governments can remove subsidies from firms that cause external costs‬
‭increasing the cost of production and forcing them to stop external costs‬
‭b.‬ ‭The government can also give subsidies to those firms that bring external benefit‬
‭3.‬ ‭Fines‬
‭a.‬ ‭Fines can be handed to firms that produce external costs thus forcing them to‬
‭reduce external costs to avoid more fines‬
‭4.‬ ‭Govt regulations‬
‭a.‬ ‭More regulations to protect the environment but enforcing them can be difficult as‬
‭some companies wield political power and influence.‬
‭5.‬ ‭Pollution permits‬

‭Ch 14: Factors of Production and Sectors of Economy‬

‭ hat is Production? Production is the process of converting raw materials into finished or‬
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‭semi-finished goods.‬

‭There are four factors affecting production:‬

‭1.‬ ‭Land: It is the‬‭physical plot of land‬‭upon which a‬‭business is operating and‬‭anything‬
‭on the land‬‭is also considered a land resource such‬‭as trees, water, oil, etc. Land‬
‭resources are divided into two types:‬
‭a.‬ ‭Renewable‬‭: Renewable land resources are those resources‬‭that are replenished‬
‭by nature and never run out, such as water, trees, etc.‬
‭b.‬ ‭Non-Renewable‬‭: Non-renewable land resources are those‬‭resources that once‬
‭used up cannot be replenished by nature, such as oil, diamond, metals, etc.‬
‭2.‬ ‭Labour: Labour is the‬‭workforce of an economy‬‭, ex‬‭- skilled labour, manual labour etc.‬
‭The value of a person or a group of individuals is called human capital and can be‬
‭increased through training and education.‬
‭3.‬ ‭Capital: Capital is an‬‭artificial resource‬‭created‬‭by labour. Classified into two types:‬
‭a.‬ ‭Working or circulating capital: It is the capital that is being‬‭converted into‬
‭semi-finished or finished goods,‬‭ex - cloth, nails‬
 ‭b.‬ F ‭ ixed capital: Such as factories, offices, machinery or tools‬‭that convert‬‭working‬
‭capital into finished or semi-finished goods.‬
‭4.‬ ‭Enterprise: Entrepreneurs are crucial to the economy because‬
‭a.‬ ‭They own the business‬
‭b.‬ ‭Come up with business ideas‬
‭c.‬ ‭Responsible for organising the other three factors of production‬
‭d.‬ ‭Bare risks if businesses incur losses or profit, and are subjected to risk because‬
‭they are owners of the business and if the business goes into bankruptcy they‬
‭will lose some or all of their money‬

‭Two types of production:‬

‭1.‬ ‭Labour Intensive: Relies more on labour relative to capital‬
‭2.‬ ‭Capital Intensive: Relies more on capital relative to labour‬

‭ enerally,‬‭Western‬‭and other‬‭developed‬‭countries prefer‬‭capital-intensive production‬‭to‬

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‭labour-intensive as capital is easier to manage‬

‭Sectors of Economy:‬
‭1.‬ ‭Primary:‬‭Extraction‬‭of raw materials from the Earth‬‭such as forestry, agriculture, etc‬
‭2.‬ ‭Secondary: Activities involving conversion of raw materials into finished goods,‬
‭ex-‬‭manufacturing‬‭and construction‬
‭3.‬ ‭Tertiary- Involves the provision of a wide variety of‬‭services‬

‭ ecently, the tertiary sector has been growing whilst the primary and secondary sectors are‬
R
‭declining in Western and developed countries, this is called‬‭deindustrialisation‬‭this occurs due‬
‭to:‬
‭1.‬ ‭People spend‬‭more money on services‬‭than on manufactured‬‭goods‬
‭2.‬ ‭Fierce and‬‭cheaper competition‬‭from countries such‬‭as India and China‬
‭3.‬ ‭As an economy‬‭grows‬‭so does its‬‭public sector,‬‭the‬‭public sector mainly provides‬
‭services‬
‭4.‬ ‭Advancements in tech cause‬‭machines‬‭to‬‭replace‬‭humans‬

‭Differences between developing and developed countries:‬

‭1.‬ ‭In developed countries, the‬‭tertiary sector is more‬‭important‬‭than the primary and‬
‭secondary sectors‬
‭2.‬ ‭In developing countries, the tertiary sector is growing but primary and secondary sectors‬
‭are more important‬
‭3.‬ ‭A larger percentage of people are employed by the primary and secondary sector in‬
‭developing countries than in developed countries which have the largest percentage of‬
‭their workforce employed in the tertiary sector‬

‭Ch 15: Productivity and Division of Labour‬

‭ hat is Productivity? It is the‬‭rate‬‭at which goods are produced and the‬‭amount‬‭produced‬
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‭relative‬‭to‬‭work, time and money‬‭needed to produce‬‭them.‬

‭Productivity =‬ ‭𝑂𝑢𝑡𝑝𝑢𝑡‬‭/‬‭𝐼𝑛𝑝𝑢𝑡‬ ‭expressed as a percentage‬‭or without symbols‬

‭ usinesses will always try to increase productivity as more goods will be produced for the same‬
B
‭or less amount of input.‬

‭We can increase the productivity of the following:‬

‭1.‬ ‭Land:‬
‭a.‬ ‭Fertilisers‬
‭b.‬ ‭Drainage systems‬
‭c.‬ ‭Irrigation‬
‭d.‬ ‭Genetically modified crops‬
‭e.‬ ‭Land reclamation‬
‭2.‬ ‭Labour:‬
‭a.‬ ‭Improved motivation‬
‭b.‬ ‭Improved working practises‬
‭c.‬ ‭Training (education)‬
‭d.‬ ‭Migration attracts skilled and knowledgeable labour from other countries to‬
‭migrate‬
‭3.‬ ‭Capital: New technology‬
‭a.‬ ‭Primary sector: usage of newer tech such as mechanised tools, machinery,‬
‭tractors and harvesters.‬
‭b.‬ ‭Secondary sector: employing newer technology such as complex machinery and‬
‭tools‬
‭c.‬ ‭Tertiary: it is primarily a labour-intensive sector, thus if machinery is used instead‬
‭of humans work can be done quicker and with fewer mistakes increasing overall‬
‭productivity, ex - humans in packaging can be replaced with robots‬

‭ hat is the Division of Labour? Division of labour is the‬‭breaking down‬‭of the‬‭production‬

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‭process‬‭into‬‭smaller tasks‬‭assigned to an‬‭individual‬‭(it is based on the idea of specialisation,‬
‭where practise makes perfect increasing overall productivity)‬

‭For Workers:‬
‭●‬ ‭Advantages‬
‭○‬ ‭Makes them more skilled at a specific task‬
‭○‬ ‭Easier to find employment‬
‭○‬ ‭Higher wages due to skill‬
‭●‬ ‭Disadvantages‬
‭○‬ ‭Boredom due to repeated tasks‬
‭○‬ ‭Dissatisfaction and boredom affect motivation‬
‭○‬ ‭Workers becoming too specialised can make it harder for them to find‬
‭employment when unemployed‬
‭For Business:‬
‭●‬ ‭Advantages:‬
‭○‬ ‭Efficiency improved as workers make fewer mistakes and perform tasks more‬
‭quickly‬
‭○‬ ‭Possible to have specialised tools and machinery due to the skill of the worker‬
‭○‬ ‭Production time decreases‬
‭○‬ ‭The organisation of production made it easier‬
‭●‬ ‭Disadvantages‬
‭○‬ ‭People become dissatisfied, bored and demotivated‬
‭○‬ ‭Loss of flexibility‬

‭ h 16:‬
C
‭Ch 17: Economies and Diseconomies of Scale‬

‭ conomies of scale the decreasing of average cost due to expansion‬

E
‭Diseconomies of scale are the increasing average cost when firms produce more products than‬
‭their optimal point causing inefficiency‬

‭ he diseconomies and economies of scale graph is U-shaped, with price on the Y axis and‬
T
‭output on the X axis, as we increase output average cost per product decreases, however after‬
‭the lowest point on the U-shaped line which is the optimal point and anything beyond it, the‬
‭average cost rises due to inefficiency, for example:‬
‭If we have 10 students and one teacher per class, the average cost per student will be‬
‭higher compared to 25 students and one teacher per class. However our optimal point, or‬
‭amount of students per class is only 25, and if we have 4 more new students, we will have to‬
‭give them another room and teacher thus increasing the average cost.‬

I‭nternal economies of scale: cost benefits that an individual firm enjoys when they‬
‭expand,‬
‭●‬ ‭Purchasing economies of scale‬‭: Larger firms can buy‬‭more resources in bulk thus‬
‭they can get cheaper rates due to bulk buying whereas smaller firms are not able to do‬
‭that thus reducing cost‬
‭●‬ ‭Marketing economies of scale‬‭: the cost for their promotion‬‭and advertisement are the‬
‭same for all, larger and smaller economies pay the same amount for these however‬
‭larger firms can spread the cost among their large outputs meaning the cost is minimal,‬
‭for small firms with small outputs the cost is very high when considering how much they‬
‭produce thus reduced cost per unit for advertising‬
‭●‬ ‭Technical economies of scale‬‭: Larger firms are more‬‭efficient than smaller ones as‬
‭larger firms can invest more in specialisation and machinery more output‬
‭●‬ ‭Financial economies of scale‬‭: Larger firms have access‬‭to cheaper credit more easily‬
‭from multiple sources than smaller firms as larger firms can always raise money for the‬
‭payments more easily through the sale of their equity and liabilities unlike smaller firms‬
‭thus cheaper interests and loans‬
 ‭●‬ M ‭ anagerial economies of scale‬‭: Larger firms can hire more experienced and skilled‬
‭managers whereas smaller firms must hire a single general manager for all tasks, thus‬
‭as a result for larger firms the average cost per unit will fall due to the experienced‬
‭manager being able to sell more thus more revenue‬
‭●‬ ‭Risk-bearing economy‬‭: Larger firms have more product‬‭ranges, thus if one product‬
‭were to do badly it wouldn’t have much impact on the overall revenue due to a‬
‭diversified range of goods.‬

‭ xternal economies of scale, are the cost benefits enjoyed by an entire industry when the‬
E
‭industry expands and mostly occur when they are located closely,‬
‭●‬ ‭Skilled labour‬‭: if industries are located in one particular‬‭area, it will attract the skilled‬
‭workers required thus when recruiting training cost is lower‬‭structure‬‭: when many‬
‭industries are in a particular area the infrastructure of the area will be developed to‬
‭benefit the industries, this is also reducing cost as skilled workers don’t have to be‬
‭trained as extensively as others thus reducing costs of training‬
‭●‬ ‭Access to suppliers‬‭: when many industries are located‬‭closely together, suppliers will‬
‭also be set up close to those industries‬
‭●‬ ‭Similar Businesses in the area‬‭: when all these firms‬‭are located close to each other‬
‭they will cooperate so that they all gain‬

‭Diseconomies of scale,‬
‭●‬ ‭Bureaucracy: larger businesses rely on bureaucracy making the entire process‬
‭bureaucratic and inefficient as lots of resources are wasted in administration‬
‭●‬ ‭Communication Problems: Large organisations employing thousands of employees,‬
‭spread all over the world with different languages can make communication complex due‬
‭to language barriers and lead to misunderstandings‬
‭●‬ ‭Lack of control: A large business is very difficult to coordinate, with thousands of‬
‭employees all over the world there needs to be more supervision and management to‬
‭properly control the firm's rising costs, as the firm gets larger it will require more‬
‭managers and supervisors to properly oversee the firm thus raising costs‬
‭●‬ ‭Distance between senior staff and shop workers: relation between managers and‬
‭workers may worsen, and many layers of management may be between the chairman‬
‭and workers thus senior officials may not be aware of the workers’ needs which may‬
‭result in misunderstanding and demotivation This may result in conflicts and wastage of‬
‭resources‬
‭Chapter 18: Competitive Markets‬

‭ ompetitive markets are those markets in which many buyers compete to cater their products to‬
C
‭sellers.‬

‭ natel was the sole and only internet provider in Burkino Faso. When its employees went on‬
O
‭strike it brought the entire internet in the nation to a halt. People couldn’t access the internet as‬
‭there were no other internet providers, thus a lack of substitutes.‬
‭ owever in Australia, the milk market is the complete opposite,‬‭it is a competitive market, and‬
H
‭there are many sellers (dairy farms) competing to cater their products to customers.‬

‭Competitive markets have features such as:‬

‭●‬ ‭Many buyers and sellers‬
‭●‬ ‭Close substitutes‬
‭●‬ ‭Low barriers to entry‬
‭●‬ ‭No single firm controls prices‬
‭●‬ ‭Free flow of information/transparency‬

‭The Firms:‬
‭●‬ ‭Firms would much rather prefer to dominate a single market rather than have‬
‭competition avoiding threats and being able to set the price as consumers would be‬
‭bound to buy from them as a result of only one brand being available‬
‭●‬ ‭However, in competitive markets firms must:‬
‭○‬ ‭Be efficient or lower costs‬
‭○‬ ‭Provide good quality products‬
‭○‬ ‭Innovate and improve products‬
‭●‬ ‭An aspect of innovation is product differentiation, meaning firms‬
‭must persuade customers that their products are different from‬
‭their rivals’ to keep market share‬
‭●‬ ‭Firms also face some disadvantages such as there being many competitors thus this‬
‭means the profit is more limited.‬

‭The Consumers:‬
‭●‬ ‭Lower prices as firms want to keep market share‬
‭●‬ ‭More choice, in competitive markets there are many close substitutes thus consumers‬
‭have the benefit of having choices to switch‬
‭●‬ ‭Better quality, firms will offer better quality products to keep customers and prevent them‬
‭from switching to rivals‬
‭●‬ ‭However, consumers do face some disadvantages as a result of competitive markets:‬
‭■‬ ‭Market uncertainty: competitive markets are uncertain, uncompetitive‬
‭firms are unprofitable and may leave the markets as a result‬
‭■‬ ‭Lack of innovation: it can be argued that as profit is limited in competitive‬
‭markets firms are unable to invest in their R&D‬

‭The Technology:‬
‭●‬ ‭Advantages: resources are allocated more efficiently to keep costs down, and they are‬
‭more innovative to keep attracting customers‬
‭●‬ ‭Disadvantages: In highly competitive markets, it can be argued that resources are‬
‭wasted one of the reasons for this is because factors of production are immobile.‬
‭Ch 19: Advantages and Disadvantages of Large and Small Firms‬

‭We can define large and small-scale firms based on:‬

‭●‬ ‭Turnover (revenue)‬
‭●‬ ‭Number of employees‬
‭●‬ ‭Balance sheet total (investment)‬

‭Small Firms:‬
‭●‬ ‭Advantages:‬
‭○‬ ‭Flexibility: small firms are better able to adapt to changes‬
‭○‬ ‭Personal service: it is difficult to contact and have customer-business relations‬
‭with the owner in large firms, however in small firms there are few people and‬
‭thus consumers can contact and have relations with the owner, this personal‬
‭service from the owners thus improves customer satisfaction‬
‭○‬ ‭Lower wage costs: smaller firms mean a smaller number of employees thus‬
‭lower wage costs‬
‭○‬ ‭Better communication: fewer employees means there are fewer‬
‭miscommunications and misunderstandings‬
‭○‬ ‭Innovation: small firms despite their lack of resources small firms are very‬
‭innovative this is due to immense competition by similarly sized small firms‬
‭●‬ ‭Disadvantages:‬
‭○‬ ‭Higher costs: smaller firms have less output and thus cannot exploit‬
‭diseconomies of scale‬
‭○‬ ‭Lack of finance: small firms lack access to finance as they are more risky‬
‭○‬ ‭Difficulty attracting quality staff: small firms can find it difficult to attract quality‬
‭staff as they lack resources they cannot afford the wages nor can they provide‬
‭the benefits like large firms‬
‭○‬ ‭Vulnerability: small firms may find it harder to survive due to dominance by larger‬
‭firms and may be at risk of takeovers‬
‭Large firms:‬
‭●‬ ‭Advantages:‬
‭○‬ ‭Economies of scale: due to their larger outputs, larger firms can enjoy economies‬
‭of scale such as bulk buying and getting cheaper prices‬
‭○‬ ‭Market domination: large firms often dominate markets as they have more brand‬
‭recognition and benefit from it, thus can charge higher prices as people will still‬
‭want to buy their products because they are a trusted brand leading to more‬
‭profits‬
‭○‬ ‭Large-scale contracts: large firms can get contracts from governments as unlike‬
‭small firms they have the resources to do these tasks.‬
‭●‬ ‭Disadvantages:‬
‭○‬ ‭Too bureaucratic: larger firms often have too large administrative systems thus‬
‭too many resources are used up and too many people must be contacted to‬
‭make one simple decision‬
 ‭○‬ C ‭ oordination and control: a large firm may be very difficult to control and‬
‭supervise and thus many supervisors and managers must be hired thus raising‬
‭costs‬
‭○‬ ‭Poor motivation: in such large firms people may often feel alienated and have tier‬
‭effort seem insignificant‬

‭Factors Influencing Growth of Firms:‬

‭●‬ ‭Government regulation: regulations are done to prevent exploitation of the consumers‬
‭thus governments prevent the growth of certain firms‬
‭●‬ ‭Access to finance‬
‭●‬ ‭Economies of scale‬
‭●‬ ‭Desire to spread risk: risk can be spread and reduced by diversification into many‬
‭products‬
‭●‬ ‭Desire to take over rivals: as firms become larger they will want to take over other rivals‬
‭to increase market share and reduce competition‬

‭Why firms stay small:‬

‭●‬ ‭Market too small: the market may be too small because there are limited opportunities to‬
‭expand the business‬
‭●‬ ‭Nature of market‬
‭●‬ ‭Lack of finance‬
‭●‬ ‭Aism of entrepreneurs: some entrepreneurs may not want to expand into larger firms as‬
‭they may have different aims such as entrepreneurs may be happy managing the firms‬
‭themselves‬
‭●‬ ‭Diseconomies of scale‬

‭Ch 20: Monopoly‬

‭Monopoly is the situation that arises when a single firm dominates an entire market,‬
f‭irms can be considered monopolistic if they hold 25% or more market share. Pure monopolies‬
‭are those firms who are the only sellers or suppliers in a particular market most commonly‬
‭railways, and water suppliers.‬

‭Features of monopolies:‬
‭●‬ ‭The single firm dominates the market‬
‭●‬ ‭Unique products: primarily monopolistic firms usually have highly differentiated products‬
‭as there is none like it‬
‭●‬ ‭Price maker: as only one firm dominates the firm customers will be bound to buy the‬
‭products regardless of price as demand is inelastic as consumers are bound to buy their‬
‭goods regardless of change in price. Thus monopolies can set any price they wish‬
‭●‬ ‭Barriers to entry: obstacles that exist for new firms trying to enter a market‬
‭○‬ ‭Legal barriers: new entrants to the market can be legally restricted if the‬
‭monopoly is given a contract to supply water and manage railroads etc. This‬
 ‭ eans that legally there can be no competition as the government has awarded‬
m
‭a single firm to carry out these tasks ranging from a period of 10 to 30 years‬
‭○‬ ‭Patents: patents are licenses that grant a company to use a newly designed‬
‭product and prevent other firms from copying their design‬
‭○‬ ‭Marketing budgets: Larger firms are able to invest more in their marketing‬
‭budgets compared to smaller new entrants, this poses a barrier to entry as‬
‭smaller new entrants are not able to expand their market share‬
‭○‬ ‭Technology: an established and larger monopolistic firm has more access to‬
‭resources to invest in its R&D division to develop newer technologies which can‬
‭lower costs and thus exploit economies of scale. However, smaller new entrants‬
‭are unable to invest much in their R&D department‬
‭○‬ ‭High start-up costs:‬

‭Advantages:‬

‭Many may argue that monopolies are harmful and not in the interest of the consumers‬
‭ owever that is not entirely the truth as natural monopolies exist, it is those monopolies which‬
h
‭can provide the product at a lower cost than competitors due to efficiency thus more people‬
‭naturally would buy their products:‬
‭●‬ ‭Efficiency: Natural monopolies exist, these monopolies can succeed as they can provide‬
‭goods at the lowest costs possible to customers due to the decreased costs of‬
‭production this leads to more customers buying from them and causes the formation of a‬
‭natural monopoly‬
‭●‬ ‭Innovation: Monopolies can make higher profits due to their dominant nature and thus‬
‭will invest more in their R&D resulting in innovation‬
‭●‬ ‭Economies of scale: most monopoles are large firms, as they dominate markets they‬
‭can enjoy economies of scale as they produce large amounts of goods thus they enjoy‬
‭bulk buying, managerial economies, and financial and risk-bearing economies as they‬
‭are larger firms they will diversify risk by having more products, will bulk buy thus getting‬
‭cheaper prices and will have access to more finance. Thus monopolies are able to enjoy‬
‭economies of scale‬

‭Disadvantages:‬
‭●‬ ‭Higher prices: as monopolies dominate the market they are able to set high prices and‬
‭the customer has no option but to buy from there as there are no substitutes‬
‭●‬ ‭Restricted choice: consumers in markets with monopolies do not have many or any‬
‭alternatives as the monopolies are the sole suppliers‬
‭●‬ ‭Lack of innovation: monopolies may not have the incentive to invest in their R&D and‬
‭product innovation as there is no need due to lack of competition‬
‭●‬ ‭Inefficiency: if a firm does not face competition it will have no incentive to keep costs‬
‭down thus it may take a care-free approach and bear unwanted costs leading the‬
‭diseconomies of scale‬

‭Ch 21: Oligopoly‬

 ‭An oligopoly is when a market is dominated by a few large firms‬
‭Features of Oligopoly:‬
‭●‬ ‭Few firms: the market contains very few firms‬
‭●‬ ‭Large firms dominate: among the only few firms only the large firms are dominating the‬
‭market‬
‭●‬ ‭Different products: the products produced in an oligopolistic market will be close‬
‭substitutes of each other however there will be differences as large firms will want to‬
‭differentiate from their rivals‬
‭●‬ ‭Barriers to entry: large firms that dominate the market will want fewer competitors to be‬
‭in the market, this will be a barrier to entry large firms will highly invest in their brands to‬
‭discourage competition.‬
‭●‬ ‭Collusion: the informal or illegal agreement between large firms in an oligopoly to restrict‬
‭competition‬
‭○‬ ‭Geographically: firms may collude to share a market geographically meaning, a‬
‭firm will supply only a particular region and not compete in others‬
‭○‬ ‭Price fixing: the firms may join together and decide to charge the same price‬
‭○‬ ‭Restrict output: firms will decide to restrict output, this causes supply to decrease‬
‭and causes prices to increase‬
‭■‬ ‭Collusion is illegal in many countries as it exploits the consumers by‬
‭restricting available substitutes and charging higher prices‬
‭●‬ ‭Non-price competition: firms want to avoid price competition and thus use coupons,‬
‭offers, and discounts as a form of branding to attract more customers instead of‬
‭changing prices. Branding is a common feature in oligopolistic markets, this creates‬
‭brand loyalty so that customers keep buying from their brand and not the competitors‬
‭●‬ ‭Price competition: price competition in an oligopolistic market is rare, once a firm‬
‭increases or decreases its price the other firms are also forced to decrease or increase‬
‭their prices this is a‬‭price war‬‭. Firms generally‬‭want to avoid price wars as they can‬
‭decrease revenue and limit profits. Price wars last for a short period.‬

‭Advantages of oligopoly:‬
‭●‬ ‭Choice: firms launch new brands to provide consumers with new products very often,‬
‭this gives the customers a choice‬
‭●‬ ‭Quality: maintaining quality is an example of non-price competition, oligopolistic firms will‬
‭improve and maintain quality allowing consumers to differentiate their products from‬
‭rivals and maintain brand loyalty‬
‭●‬ ‭Economies of scale: if dominant firms can exploit economies of scale it will lower the‬
‭average cost and prices can be lowered‬
‭●‬ ‭Innovation: firms that dominate the market can invest more in R&D due to more‬
‭resources being made available.‬
‭●‬ ‭Price wars: in oligopolistic markets, prices tend to stay stable for long periods, this is‬
‭advantageous for customers. If a firm were to decrease prices, rival firms would also‬
‭have to decrease prices in order not to lose market share‬
‭Disadvantages of oligopoly:‬
‭●‬ ‭Consumers would not benefit from oligopolistic markets if there was no competition at‬
‭all, firms are tempted to collude to restrict competition by price fixing thus charging the‬
‭consumer higher prices and geographically sharing a market resulting in a lack of‬
‭substitutes‬
‭●‬ ‭A cartel might exist where firms formally or legally join together and agree on pricing and‬
‭output levels. In the USA and EU, all forms of cartels and collusion are illegal, however,‬
‭OPEC (Organisation of Petroleum Exporting Countries) is a legal cartel of the largest‬
‭oil-producing countries that come together to decide on the price of oil and and output.‬

‭Ch 22: Labour Market‬

‭ abour is the physical or mental effort to make a product‬

L
‭The price of Labour is the‬‭wage rate‬‭which is the‬‭amount of money paid per amount of time‬
‭working to a worker‬

‭ emand for Labour is the quantity of labour demanded by producers‬

D
‭Supply for Labour is the quantity supplied by workers meaning people willing to work‬

‭Demand for Labour:‬

‭ ovement along the demand curve for labour is the change in demand for labour‬
M
‭caused by changes in wage rates and it is inversely proportional:‬
‭WR Increases Qd Decreases‬
‭WR Decreases Qd Increases‬
 ‭ age rates and quantity demand for labour are inversely proportional as the wage rate‬
W
‭increases the suppliers will have less demand for labour as costs will increase, however as the‬
‭wage rate decreases the demand for labour will increase as it is cheaper.‬

‭Movement along the demand curve occurs‬‭when wage rates‬‭remain the same‬
‭however other factors change the quantity demand for labour by producers:‬
‭NOTE: SHIFT TO RIGHT - INCREASE, SHIFT TO LEFT: DECREASE‬
‭●‬ ‭Demand for product: Demand for labour is called derived demand, meaning it is the‬
‭demand that arises because there is an increase in demand for another product. If the‬
‭demand for a product increases, naturally suppliers will have a higher demand for‬
‭labour. Thus:‬
‭○‬ ‭Demand for Product Increase - Qd for Labour Increase - Shift to Right‬
‭○‬ ‭Demand for Product Decrease - Qd for Labour Decrease - Shift to Left‬
‭●‬ ‭Availability of Substitutes: machineries are substitutes for labour and depending upon‬
‭the availability of these substitutes the demand will be shifted,‬
‭○‬ ‭More Substitutes Available - Qd for Labour Decreases - Shift to Left‬
‭○‬ ‭Fewer Substitutes Available - Qd for Labour Increases - Shift to Right‬
‭●‬ ‭Productivity of Labour: productivity of labour, is how much output is produced for a given‬
‭amount of input, increasing productivity of labour means that labour is producing more‬
‭output, if productivity increases firms will want to hire more workers as they will be able‬
‭to increase production and become more profitable‬
‭○‬ ‭More Productive - Qd for Labour Increase - Shift to Right‬
‭○‬ ‭Less Productive - Qd for Labour Decrease - Shift to Left‬
‭●‬ ‭Other employment costs: these types of costs include healthcare costs, insurance costs,‬
‭pensions, cars, free meals and other costs. Increased costs are a factor affecting the‬
‭demand curve for labour‬
‭○‬ ‭Higher Employment Costs - Qd for Labour Decreases - Shift to Left‬
‭○‬ ‭Lower Employment Costs - Qd for Labour Increases - Shift to the Right‬
‭Supply of Labour:‬

‭ he movement along the supply curve is the changes in the supply curve of labour when there‬
T
‭are changes in wage rates. Wage rate and quantity supply of workers have a proportional‬
‭relation.‬
‭Wage Rates Increase. Qs of Labour Increases‬
‭Wage Rate Decreases, Qs of Labour Decreases‬

‭ hift in the supply curve for labour occurs when the wage rate remains the same however other‬
S
‭factors cause a change in quantity supply thus shift in the supply curve:‬
‭●‬ ‭Population size:‬
‭○‬ ‭Population Increase - More People Able to Work - Shift to Right‬
‭○‬ ‭Population Decrease - Fewer People Able to Work - Shift to Left‬
‭●‬ ‭Migration: immigrants coming into the nation‬
‭○‬ ‭Higher migration - More People - Qs Increase - Shift to Right‬
‭○‬ ‭Lower migration - Less People - Qs Decrease - Shiift to Left‬
‭●‬ ‭Age Distribution of Population: a developed country has demographically more people‬
‭above the age of 65, this means that there are fewer people able to work due to the‬
‭elderly population and this also increases the dependency ratio an example of such a‬
‭country is Japan, this causes a shift to the left. For developing countries, more young‬
‭people meaning more people in the workforce this causes a shift to the right.‬
‭●‬ ‭Retirement age: the higher the retirement age more labour is available, the lower the‬
‭retirement age the less the quantity supply of labour‬
‭●‬ ‭School leaving age: school leaving age refers to the age at which students can leave‬
‭school, the lower this age the more the quantity supply of labour as people will be able to‬
‭join the workforce faster. The higher the school leaving age means there is a lower‬
‭quantity supply of labour.‬
 ‭●‬ F ‭ emale participation: more females participating in the economy means there are more‬
‭people in the workforce‬
‭●‬ ‭Skills and qualification: the supply of labour will increase if people become more‬
‭qualified and skilled‬
‭●‬ ‭Labour mobility: refers to how easily people can move geographically and occupationally‬
‭between jobs, this allows for more labour to be available as they can quickly switch to‬
‭other jobs‬

‭Wage Determination:‬
‭ he wage rate is determined in a market by the equilibrium point that forms when the lines of‬
T
‭supply and demand of labour. This equilibrium wage is $800 per week for 80 workers. An‬
‭equilibrium wage is determined when the supply and demand of labour are equal.‬

I‭mportance of quantity and quality of labour to businesses: businesses when searching for‬
‭locations will purposefully locate their factory in a place where the labour in surrounding areas‬
‭meets the standards to maintain quality work. Businesses cannot afford to have poor quality,‬
‭thus they usually do not locate factories where labour is cheap ass cheap labour often‬
‭comprises unskilled and uneducated workers.‬

I‭mpact of education and training on the quality of human capital: The quality of human capital‬
‭and labour can be improved through education and training as these educated and skilled‬
‭workers are more productive and can read, write and communicate. Skilled and educated labour‬
‭is more productive and allows them to know about their jobs.‬

‭Ch 23: Impact of Changes in the Supply and Demand for Labour‬

‭What are trade unions?‬

‭Trade unions are organisations that represent the workers working in a particular‬
‭industry or profession to protect their rights‬

‭Aims of trade unions:‬

‭●‬ ‭Negotiate pay and working conditions with employers‬
‭●‬ ‭Provide legal protection for members‬
‭●‬ ‭Pressure on governments to pass legislation‬
‭●‬ ‭Provide financial benefits to workers such as strike pay‬

‭ rade unions can cause disruptions to production when disputes arise that may lead to strikes,‬
T
‭to prevent disruptions governments passed new laws :‬
‭●‬ ‭Secret ballot, a ballot or a vote now required amongst the members to decide whether a‬
‭strike is to go ahead or not‬
‭●‬ ‭Banned secondary picketing, where workers in one place go on strike to support other‬
‭striking workers‬
‭●‬ ‭Made closed shops illegal, closed shop means that a worker must belong to a certain‬
‭union‬
‭These are all parts of efforts to reduce the power of unions through legislation called anti-trade‬
‭union legislation‬

‭Effects of trade unions on employment and wages:‬

‭●‬ ‭Trade unions with the support of their members can put pressure on employers to‬
‭increase wages, however, this increase in the wage rate would also affect the market‬
‭quantity equilibrium for wages‬
‭●‬ ‭For employers‬
‭○‬ ‭Costs rise as wage rates rise‬
 ‭○‬ ‭Profit margins decrease‬

‭How does a national minimum wage rate (NMW) affect the labour market‬

‭ irstly, our market equilibrium wage was at points W eq and N eq, however after the introduction‬
F
‭of a national minimum wage, the wage rate was increased to W min. The increase in wage rate‬
‭would increase the cost for producers and thus they would employ fewer workers, this would, in‬
‭turn, cause unemployment.‬

‭Ch 24: Government Intervention‬

I‭n some cases, businesses may neglect the stakeholders, and other parties involved or affected‬
‭by businesses, such as environmental harm caused by businesses or unfair practices such as‬
‭overcharging customers. During these situations governments willingly intervene to protect the‬
‭interests of stakeholders, this is called‬‭government‬‭intervention‬‭.‬

‭Government intervention and competition:‬

‭●‬ A ‭ n aspect of government in the economy is promoting competition and preventing‬

‭anti-competitive practices‬‭by businesses, these are‬‭actions or activities undertaken by‬
‭firms to restrict competition‬
‭●‬ ‭The government may take the following actions for competition‬
‭○‬ ‭Encourage the growth of small firms:‬‭to counteract‬‭these anti-competitive‬
‭actions by firms, governments can encourage smaller businesses by helping‬
‭them grow to introduce more competition and make more options available for‬
‭consumers. Such as providing funds for new businesses and, lower taxes,‬
‭providing other financial provisions such as cheaper loans‬
 ‭○‬ L ‭ ower barriers to entry:‬‭removal of barriers to entry makes entry of new‬
‭businesses to markets much easier and thus makes the market more competitive‬
‭due to newer firms joining.‬
‭○‬ ‭Introduction of anti-competitive legislation:‬‭in various‬‭countries, legislation‬
‭exists that prevents firms from practising methods and activities that undermine‬
‭competition. The Competition Commission of India (CCI) acts as a regulator to:‬
‭■‬ ‭Eliminate anti-competitive practises‬
‭■‬ ‭Promote competition‬
‭■‬ ‭Protect consumer interests‬
‭■‬ ‭Ensure freedom of trade‬
‭●‬ ‭Limit Monopoly Power:‬
‭○‬ ‭Monopolies in markets must be monitored carefully and governments must‬
‭intervene to prevent exploitation of customers and rival firms.‬
‭○‬ ‭This can be achieved through an appointed body for overseeing such large‬
‭monopolies such as in China with its State Administration for Industry and‬
‭Commerce.‬
‭○‬ ‭A watchdog is assigned to a specific industry dominated by one or two firms to‬
‭monitor the activities of these large firms.‬
‭○‬ ‭Anti-trust, anti-trust legislation is legislations that prevent the formation of‬
‭monopolies or is responsible for breaking up monopolies as seen in the first‬
‭anti-trust laws that mandated that the Rockefeller, Standard Oil company be‬
‭liquidated into smaller companies and recently anti-trust laws that prevented the‬
‭takeover of Blizzard Activision by Microsoft.‬
‭ ‬ ‭Protect consumer interests‬
●
‭○‬ ‭To prevent exploitation of consumers by firms through anti-competitive practises‬
‭such as the following:‬
‭■‬ ‭Increasing prices to higher levels‬
‭■‬ ‭Price fixing‬
‭■‬ ‭Raising barriers to entry‬
‭○‬ ‭Thus legislations exist to prevent such business activities which can result in‬
‭businesses being fined and being forced to compensate customer‬
‭●‬ ‭Control mergers and takeovers‬
‭○‬ ‭To ensure the competitiveness of markets governments monitor mergers and‬
‭takeovers of firms, and if the takeovers do not have the interests of consumers‬
‭they can be blocked by governments as it may be done to reduce competition to‬
‭limit the availability of substitutes‬

‭Government intervention and the labour market:‬

‭●‬ ‭One method of intervention by governments is the introduction of the minimum wage,‬
‭which sets the minimum amount firms are to pay their employees. The reasons for this‬
‭are as follows:‬
‭○‬ ‭Benefitting disadvantaged workers such as women, low-income families and‬
‭minorities in the workforce to reduce inequality and close the rising wage gap‬
 ‭○‬ M ‭ ore income allocated to workers will eventually result in the government’s‬
‭increase in revenue due to taxation on higher-income‬
‭○‬ ‭Motivate workers to be more productive‬
‭○‬ ‭Force firms to make workers more productive to justify and compensate for the‬
‭increase in wage‬
‭ ‬ ‭Impact:‬
●
‭○‬ ‭Cases increase in quantity supply for labour‬
‭○‬ ‭However, the number of people employed decreases due to the higher wage‬
‭costs which causes unemployment‬
‭○‬ ‭The previous equilibrium wage was at QL1 and W1 however after the new‬
‭minimum wage of W2, we see the supply increasing however the demand for‬
‭labor has decreased to QL2 representing a loss in jobs as businesses aim to‬
‭reduce costs.‬
‭How to answer questions:‬

‭●‬ ‭6 Marks - All in one paragraph‬

‭○‬ ‭Knowledge part/definition or statement‬
‭○‬ ‭Identification of three points‬
‭○‬ ‭Further explanation of three points identified‬
‭●‬ ‭9 Marks - Each component is a different paragraph‬
‭○‬ ‭Knowledge part‬
‭○‬ ‭Advantages (identification of 3 points + explanation of each)‬
‭○‬ ‭Disadvantages (identification of 3 points + explanation of each)‬
‭○‬ ‭Conclusion‬
‭ ‬ ‭12 Marks - Each component is a different paragraph‬
●
‭○‬ ‭Knowledge part‬
‭○‬ ‭Advantages (identification of 3 points + explanation of each)‬
‭○‬ ‭Disadvantages (identification of 3 points + explanation of each)‬
‭○‬ ‭Evaluation - How to overcome or solve the problem‬
‭○‬ ‭Conclusion‬