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Economics- Allocating resources

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kushagramodi56's version from 2015-05-11 17:37

Section

Question Answer
Functions of planned/ command economy1. No private sector
2. Perfect income equality
3. Provision of welfare, healthcare and education by state
4. Regulation of de-merit goods
5. No incentive to make profit/ work harder
Functions of free market economy1. Private sector decides what is produced
2. Income inequality
3. Provision by private sector only
4. No regulation of de-merit goods
5. Huge incentive to make profit/ work harder
Law of demandAs price rises, demand decreases
Define demandA want that must be effective (backed up by money to purchase item)
Law of supplyAs price rises, supply increases
What is shift in demand curves caused by1. Advertising
2. Taste and preference
3. Price of substitutes
4. Income of consumer
5. Price of complements
6. Population
What is shift in supply curves caused by1. Subsidy/tax
2. Production prices
3. Worker's wages
Define PEDMeasures responsiveness of quantity demanded to change in price
Equation for PED%change in QD/ %change in P
Define PESMeasures responsiveness of supply to change in price
Equation for PES%change QS/ %change P
3 forms of market failure1. Firms fail to produce goods consumers want
2. Firms fail to produce quantity of goods required
3. Firms fail to produce goods at acceptably low prices
Define private costsCosts of decision to 1st party
Define private benefitsBenefits of decision to 1st party
Define external costsCosts of decision to 3rd party
Define external benefitsBenefits of decision to 3rd party
Define social costsPrivate costs + external costs
Define social benefitsPrivate benefits + external benefits
memorize