Information failure leads to over and under consumption of these

goods.
Existance of Monopolies: Monopolies. A monopoly, as a market structure, results in an
inefficient allocation of resources because it is the only supplier in the market.

Negative Externalities :
Definition of social cost – Social cost is the total cost to society. It includes private costs
plus any external costs.

 Costs of paying for petrol (personal cost)

 Costs of increased congestion (external cost)
 Pollution and worse air quality (external cost)
 The social cost includes all the above. (Petrol + congestion + pollution

Definition of Social Benefit: Social benefit is the total benefit to society from producing or
consuming a good/service.
 Social benefit includes all the private benefits plus any external benefits of
production/consumption.
 If a good has significant external benefits, then the social benefit will be greater than the
private benefit.
DEMAND AND SUPPLY:
PRICE CAUSES A MOVEMENT

NON-PRICE FACTORS CAUSES A SHIFTS

6 marks analysis question

Correctly labelled Diagram

Equilibrium price and quantity traded

Shift (D shifts S moves)

(S shifts D moves)

COMMENT ON change in price and quantity traded.(2 mks)

PED

PED is ALWAYS negative as there exists an INVERSE relationship.

Definition

Formula

Diagram

Elastic demand , Ped >1substitutes, luxury greater proportion of

income spent. Flat curve

Inelastic demand, Ped <1: necessity, few substitute lower proportion

of income spent. Steep curve

1. How does PED change over time for smartphones;

2. Firms advertise for luxury cars or bread.
Significance of PED: FIRMS WANT TO INCREASE TR

TOTAL REVENUE (PxQ)

Elastic goods; decrease price as qd increases more than

proportionately (TR increases)

Inelastic goods: increase price as qd falls less than proportionately (TR

increases.)

PES is always positive; positive relationship

Elastic supply , Pes >1, very quick to respond to a change in price

 Pros & Cons of Trade Unions For Workers
Pros
 Workers no longer need to negotiate
with management on their own as they
benefit from collective bargaining
 Workers receive better pay than non-
unionised workers
 Workers enjoy better working
conditions than non-unionised
workers
 Workers enjoy better non-wage
benefits such as guaranteed lunch
breaks
 Workers receive specialised job
training & free legal advice from the
union
Cons
 Industrial action is stressful as it is a
conflict between workers &
management
 Workers do not get paid while on
strike
 Strike action disrupts economic
activity & can upset other people in
the economy
 Individual workers may not agree with
specific demands made by the trade
union on behalf of all the workers, & yet
they are pressured to support
the collective action
 Some union members continue to work
through a strike (they may need the
money) & receive abuse &
intimidation from the other striking
union members
 Pros & Cons of Trade Unions For Firms
Pros
 Training from the trade union increases
worker productivity which decreases
costs
 Empowerment in the workplace improves
employee motivation, which usually
results in fewer sick days, higher
productivity & greater output for the firm
Pros & Cons of Trade Unions For Governments/Economy
Pros
 Trade unions help create a more equal &
prosperous society
 A prosperous society is the basis of
strong consumption in an economy & this
helps to drive economic growth
 If firms’ profits increase due to increased
productivity, governments receive more
corporation tax
 Higher wages mean that the workers
pay more income tax to the government,
which can be used to further fund public &
merit goods
Cons
 Including unions in decision-
making increases the time period taken to
implement changes which can be
detrimental to effective competition
 Management styles have to be more
inclusive & less authoritarian which some
managers find difficult to accept
 Meeting union demands increases costs of
production, which may reduce output &
profits
Cons
 Industrial action reduces output, lowers
firms’ profits, thereby lowering the
potential corporation tax collected by the
government
 Strike action is often very disruptive to
many people’s lives, especially when it
occurs in essential industries such as rail
networks
 Governments may find it harder to attract
multinational corporations (MNCs) to
invest if industrial action occurs regularly
 MNCs may be more reluctant to invest in
strongly unionised economies as the costs
of production will be higher