Suppose good A and good B are complements and the government has imposed a $1 tax on producers of
good A. How will the final equilibrium price compare if use a General Equilibrium Analysis as opposed to
a Partial Equilibrium Analysis?
Solution: Partial Eq
The equilibrium price and quantity in a market will change when there are shifts in both
market supply and demand.
A change in market demand
Analysis diagram showing an outward shift of market demand on market price and
Private goods are goods and services supplied and sold through markets by private
A private good or service has three main characteristics:
1. Excludable: A ticket to the theatre or a meal in a restaurant or pay-per-view
What is the Gini Coefficient?
The Gini coefficient is a commonly-used measure of income inequality that condenses
the entire income distribution for a country into a single number between 0 and 1: the
higher the number, the greater the degree of income in
This study note focuses on the main factors of production - i.e. inputs used in the supply of
goods and services
Land includes all natural physical resources e.g. fertile farm land, the
benefits from a temperate climate or the harnessing of wind pow
Externalities occur outside of the market i.e. they affect people not directly
involved in the production and/or consumption of a good or service. They are also
known as spill-over effects.
Economic activity creates spill over benefits and spill over cost
What are merit goods?
Merit goods are those goods and services that the government feels that people
will under-consume, and which ought to be subsidised or provided free at the point
of useso that consumption does not depend primarily on the ability to p
There is a wide gulf in pay and earnings rates between jobs.
Some of the relevant factors are listed below
1. Compensating wage differentials - higher pay can often be some reward
for risk-taking in certain jobs, working in poor conditions and having to
Supply is the quantity of a product that a producer is willing and able to supply onto the
market at a given price in a given time period
The law of supply - as the price of a product rises, so businesses expand supply to the
market. A supply curve shows
Income elasticity of demand measures the relationship between a change in quantity
demanded for good X and a change in real income. Check out our short revision video on
income elasticity of demand.
What is the formula for calculating income elasticity of
1. A drug company has a monopoly on a new patented medicine. The product can be
made in either of two plants. The costs of production for the two plants are MC1 = 20
+ 2Q1, and MC2 = 10 + 5Q2. The firms estimate of the demand for the product is P = 20
1. The inverse demand function for coffee is p = 50,000 2q, where q is the numbers of tons
produced and p is the price per ton. Total revenue from coffee sales be maximized when the
output level is:
a) 25000 tons
b) 15000 tons
c) 17500 tons
d) 12500 tons
About 100 million pounds of jelly beans are consumed in the United States each
year, and the price has been about 50 cents per pound. However, jelly bean
producers feel that their incomes are too low, and they have convinced the
government that price supp
Trade Unions are organisations of workers that seek through collective bargaining with
employers to protect and improve the real incomes of their members, provide job security,
protect workers against unfair dismissal and provide a range of other work-rel
Our desires are unlimited, but resources are scarce
Our desires are unlimited but our pocket money is scarce (limited). Similarly, Goods are scarce,
because economy of a country can produce a limited amount of goods, but people desire much
What are the main factors that affect the coefficient of price elasticity of demand?
A number of factors come into play in determining whether demand is price elastic or
price inelastic in a given market
Factors affecting price elasticity of demand
Public goods provide an example of market failure resulting from missing markets.Which
goods and services are best left to the market? And which are more efficiently and fairly
provided as collective consumption goods by the state? This is at the heart of
The poverty trap affects people living in households on low incomes.
It creates a disincentive either to look for work or work longer hours because
of the effects of the income tax and welfare benefits system.
For example, a worker might be given the oppo
Whenever you are reading articles on current affairs it is important to be able to
distinguish between objective and subjective statements
What are positive statements?
Positive statements are objective statements that can be tested, amended or rejected