Y10

Economics
Revision Section 1 and 2
The Nature of the
Economic Problem
Hyun, Byeongyun

The Main problem: How to

efficiently allocate limited resources
to fulfil the unlimited needs and
wants
Needs – Things that are needed for
survival
Wants – Things that are not needed
for survival but desired
Basic economic questions- What,
How and For whom to produce?
 Factors of production :

Land: refers to the natural resources

required in the production process
Labour: the human resources required
in a production process
Capital: the manufactured resources
required in the production process
The Factors of Enterprise: a person required to
manage the other 3 factors of
ProductionTrung production
Duc and Vu An
Rewards for factors of production :
- Rent
- Wages and salaries
- Interest
- profit
Opportunity cost By Seokgyu and Doyoon

The definition of opportunity cost is the next best option given up when making a choice
This is because in most cases there is an alternative

[Examples of opportunity cost]

OR
Why does opportunity cost exist?
- Consumers have limited incomes -
whenever they purchase a particular good or service,
they give up the benefits of purchasing another
product.
OR - Workers tend to specialise - for example, as
secondary school teachers, accountants, doctors and
lawyers. By choosing to specialise in a particular
If I choose one goods or servies between here, profession, workers give up the opportunity to pursue
the left one would be opportunity cost other job and career.
Production Possibility Curve Nikki
and Seojin
Definition :
PPC Diagram – a graph of the maximum
amounts of goods and services that can be
produced in an economy per period of time.
Production Possibility Curve - represents the
combination of goods and services which can be
produced in an economy (productive
capacity of the economy)

Shifts : outwards - increase in quality

(highly skilled labour / technology
Movements : advancement)
Conditions: 1 – all resources have to be used - increase in
2- efficiency in the use of resources quantity
Consequences: Opportunity Cost (to produce (discover new resource / net migration)
more of one product, there must be Shifts : inwards – detrimental changes
less of another product) (natural disaster / war that
destroys farmland, factories)
Increase/decrease in
productive capacity of the
Microeconomics & Macroeconomics
Da Hyun(feat. Mi So)
Macroeconomics
Microeconomics

Firms Government

Individuals/Households

Particular markets
Decision making in the
(section of the economy) whole economy
The Role of Markets in Allocating Resources (Minchan and Julie)
Market equilibrium: when the demand for a product matches the supply
= no excess demand or excess supply
Market disequilibrium: when the price for a product is too high or too low
= too high: excess supply or surplus, too low: excess demand or shortage
Price mechanism: Refers to the system of relying on the market forces of demand and supply to allocate resources
The market system:
=> the method of allocating scarce resources through the market forces of demand and supply
Market forces
Decisions about resource allocation
1. What production should take place?
How should production take place?
2.
Demand and supply
3. For whom should production take place?
CONSUMER PRODUCER
Show preference – price re-allocate resources
Market equilibrium
DEMAND Xuan Mai

Demand refers to the

willingness and the ability of
customers to pay a given price
for a good or service.
Law of Demand:
Inverse Relationship
The higher the price of a
product, the lower the demand
tends to be.
The amount of good or service
demanded at each price level
is called quantity demanded.
Determinants of Demand –
$1000 $1500
Non price factors
DETERMINANTS Xuan Mai

Habits Advertising
Demand
curve
Fashions tastes Marketing

ISncome Government
contraction

Able willing Policies

ubstitutes Economy
extension
P
ri
c
e
Complements Weather population
Quantity demanded
SupplyOliver
Supply - "the willingness and ability of firms to provide goods
and services at given price levels"
Law of supply – positive relationship between price and quantity
supplied – higher price = higher supply
Supply is affected by price, but also by TWO TIPS (Time, Weather, Opportunity cost, Taxes,
Innovations, Production costs, Subsidies)

Supply curve – goes from right to left because of positive relationship

Movement – occurs if price changes, extension = price increase,
contraction = price decrease
Shift – occurs if a non-price factor changes, fall in supply = left shift,
increase in supply = right shift

Market supply – aggregation of all supply at a certain price level

 SupplyOliver
Basics of Supply Supply Curve
Supply - "the willingness and ability of firms to Travels left to right because of the Law of
provide goods and services at given price levels" Supply
A movement occurs when price changes
Law of Supply: A shift occurs when anything else changes
Positive relationship between price and quantity
supplied
As price increases, so does quantity supplied

Supply is affected by price and by TWO TIPS

Time, Weather, Opportunity cost, Taxes, Innovations,
Production costs, Subsidies
 Price Determination
Price Determination
Price determination is dependant on the forces of demand and supply.
Price equilibrium formula: Qs = x + yP & Qd = x +yP
Aria

Surplus & shortages Market equilibrium & Disequilibrium Equilibrium

price
Surplus: When the Market Equilibrium: is
product/service supplied is achieved at the price at
greater than the quantity which quantities demanded
demanded and supplied are equal.
Shortage: When the Market Disequilibrium: an
quantity demanded of a Imbalance between the
good/service is greater quantity demanded and the
than the quantity quantity supplied:
supplied.
Price Changes
Suyeon & Minseon

Causes of price change

Change in non-price factors >> affects demand&supply to shift
IF shift: change in equilibrium price
IF supply shifts (TWOTIPS):
Left: Equilibrium price ↑
Right: Equilibrium price ↓
IF demand shifts (HISAGE):
Left: Equilibrium price ↓
Right: Equilibrium price ↑
Price Elasticity of DemandMinh Giang and Mickey

Measures the degree of

responsiveness of demand caused
by a change of price
If a change in price causes a
relatively small change in
demand, then demand is said to
be inelastic, that is lack of
responsiveness from the
consumers
Formula for elasticity of demand :
On the other hand, if a small Change in quantity demanded/Change in price
change in price causes a large *Always ignore the negative sign next to the number
change in demand, then demand If : Result = 1 (Unitary elasticity)
is said to be elastic Result = 0 (perfectly price inelasticity)
Result = <1 (Price inelasticity)
Result = >1 (Price elasticity
Result = Infinity (Perfectly price elasticity)
 Price Elasticity of SupplyMinh Giang and Mickey

Measure the degree of

responsiveness of supply caused Formula for elasticity of demand :
by a change in price Change in quantity
demanded/Change in price
If a change in price causes a big If : Result = 1 (Unitary elasticity)
change in supply, then the Result = 0 (perfectly price inelasticity)
elasticity is high, called elastic. Result = <1 (Price inelasticity)
Result = >1 (Price elasticity
However, if a change in price Result = Infinity (Perfectly price
causes a small change in supply, elasticity)
then the elasticity is considered
inelastic
 Market
Economic
Market Economic system is Market economy is a state that
System
divided in three types: market,
mixed, and planned.
companies are more affecting
to economy than the

Junbeom
government, which means that
companies are the core of the
economy. (e.g. England, and Japan)

Mixed economy is a state that Planned economy is a state that

both companies and government is more affecting
government are affecting to to the economy than the
the economy equally, which companies, which means that
means that both companies and government is the core of the
government are the core of the economy. (e.g. China, Cuba, Vietnam,
economy. (e.g. United States, United and Laos)
Kingdom, and Germany)
 There are a lot of economic system as mentioned in previous presentation. What are the
advantages and disadvantages of them? For instance, in market ecnomic:

Advantage:

Market
1. Competition leads to efficiency such as less waste, lower cost of production, lower
prices, and various options. This helps to boost innovation and inflation and positively
affect the economy.

economic 2. Have incentives in work – can earn profit ->more wealth -> economic growth ->
better living standards.

system
Disadvantage:
3. Income and wealth inequality will become consequence of this system because a lot
of people wants to buy the product, and if they buy it, the enterpriser get more
money with less paying which makes the enterpriser richer and richer and finally
become inequality.
4. the market economic may harm the environment because a lot of companies have
opportunity to manufacture and sell the product. Then, the companies may extract
too much resources for profit. In consequence, they can harm environment by
running too much factories and scarcer of natural resources.
5. Market economic can consequences social relationship because public goods such as
street light or education will not be provided.
Market FailureTrung Nguyen
Definitions:
Market Failure occurs when the production or consumption of a good or service causes externalities to a third party.
External costs are the negative side-effects of production or consumption incurred by third parties, without any compensation paid
External benefits are the positive side-effects of production or consumption experienced by third parties.

Causes of market failure

include:
Public goods - The private sector fails to provide
certain goods and service due to a lack of a profit motive.
Such goods and services are known as public goods
Merit goods – goods are deemed to have social
benefits yet are under-provided (less provided) and
under-consumed (less consumed) without government
intervention or provision.
Demerit goods – goods or services which when
produced or consumed cause negative spill-over effects
in an economy
Abuse of monopoly power - Without
government control, certain private sector firms could
grow to become monopolies and exploit their market
power by charging higher prices or reducing supply.
Factor immobility – This occurs when it is difficult
for factors of production to move or switch between
different uses or locations. As the results,