Unit 1 Economic Notes

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					                                                         CONTENTS OF ENTIRE BOOK



Unit 1 Markets: How They Work.......................................................................................... 1
Positive and normative thinking ................................................................................................1
Opportunity cost ........................................................................................................................1
The production frontier or production possibility curve ............................................................3
Specialisation and foreign trade..................................................................................................6
Demand and supply: an introduction..........................................................................................8
The elasticity of demand...........................................................................................................20
The elasticity of supply.............................................................................................................30
Demand and supply: applications to any market are possible..................................................32
The market mechanism working...............................................................................................34
Consumer and producer surplus...............................................................................................39

Unit 2 Markets : Why Markets Can Fail.............................................................................43
What does market failure mean?..............................................................................................44
Reason 1 - Monopoly elements or market dominance.............................................................47
Oligopoly..................................................................................................................................51
Imperfect competition or monopolistic competition................................................................54
Reason 2 - externalities, social cost and private costs..............................................................58
Reason 3 - public goods............................................................................................................64
Reason 4 - merit goods.............................................................................................................65
Reason 5 - demerit goods.........................................................................................................66
Reason 6 - information failures................................................................................................67
Reason 8 - factor immobility....................................................................................................70
Other issues and market problems exist:
The distribution of income and wealth....................................................................................75
Economies of scale...................................................................................................................79
Price fixing by government or one of its bodies.......................................................................84

Unit 3: Managing the Economy.............................................................................................90
Why is the government involved in the economy....................................................................90
How can government try to manage the economy?..................................................................92
Inflation.....................................................................................................................................95
Unemployment.......................................................................................................................100
The balance of payments........................................................................................................106
Gross domestic product (GDP)...............................................................................................110
Economic growth....................................................................................................................113
Aggregate demand..................................................................................................................120
Aggregate supply....................................................................................................................122
Altering the level of national income.....................................................................................123
Macroeconomic policy – what the government does or tries to do........................................128
The multiplier.........................................................................................................................136
The interest rate and the level of investment..........................................................................136
Money and monetary policy...................................................................................................138
Fiscal policy............................................................................................................................146
Supply side economics...........................................................................................................152
The Phillips curve...................................................................................................................158

Unit 4: “The Theory of Production & Costs”....................................................................164
The growth of firms................................................................................................................164
The external growth of firms:.................................................................................................167
Multination corporations.........................................................................................................169
An introduction to production theory and costs......................................................................170
Cost curves..............................................................................................................................175
The different possible market conditions................................................................................178
Perfect competition.................................................................................................................179
Monopoly................................................................................................................................184
Imperfect competition or monopolistic competition..............................................................188
An introduction to efficiency..................................................................................................192
An introduction to price discrimination..................................................................................196
Pricing strategies.....................................................................................................................199
Game theory............................................................................................................................201
Oligopoly - the kinked demand curve.....................................................................................203


Unit 5A: Labour Markets....................................................................................................207
The supply of labour...............................................................................................................207
The demand for labour............................................................................................................210
Determining the equilibrium wage.........................................................................................214
The effects of trade unions.............................
				
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