Economics Mid-Semester Exam Review

all decision-makers have infinite wants but there are finite resources (SCARCITY)

EnsEnsures that even thought people pursue their own self interest that this will result in a public benefit through maximising welfare Lets price move towards cost (sellers ­ profit by decreasing prices, increasing competition). Will reach equilibrium
Seeming paradox - good outcome from bad behaviour

Competition – many sellers and buyers

how we think people behave (people NEED incentive!)Theory suggest people rationally maximise their own material welfare

Economists think about moving forward – Economic Prosperity ­ Technology – old ways destroyed in the process looking for new, need incentives to taken opportunities presented, property rights – legal entitlement

Increasing Economies of Scale - Production costs (additional input) decrease as scale of production increases

Decreasing Economies of Scale - Production costs increase as scale of production increases (occurs as a result of mismanagement)

Constant Economies of Scale - constant quantities input the more produced

- Manufacturing firm too large, become inefficient

More efficient:
- Manufacturing firms to be large
- Professional service firms to be small, "too many cooks spoil the broth"
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Means of exchange and storage of value
Allows for trade

Prices linked to quantity of money
More money w/o extra production puts upward pressure on prices, as more bank notes buying the same amount of goods.
Therefore printing more money leads to inflation e.g Zimbabwe 2006 - 2008
However, a small amount of inflation is not a serious problem

Unexpected inflationary bursts leading to wiping out value of precious savings, impoverishing large sections of the population.

- Changes relative prices
- Decreases specialisation
- Breakdown economic relations
- Causes great poverty and misery

This will mean there is less funding for all other areas e.g education, defense etc.

To reflect the difficulty with which goods are made.
To signal the relative scarcity of resources in an economy.

Create consistency in market
Ensure positive competition
Gov duty to prevent negative competition