AS Scarcity, choice and allocation

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AS Scarcity, choice and allocation

  1. 1. AS Economics Scarcity, choice and allocation
  2. 2. Scarce resources and unlimited wants and desires
  3. 3. Today’s objectives • Discuss different economic objectives • Look at how resources are allocated to different groups
  4. 4. The 4 main players in the economy All have competing and different interests What are they?
  5. 5. Welfare maximisation • In economics, we start by assuming that everyone wants to maximise their financial rewards • This will give them the greatest amount of welfare/happiness
  6. 6. Allocation of resources in a free market economy = equilibrium Entrepren- eurs Firms Owners of factors of production Consumers Sell their resources to the entrepreneurs / firms for the greatest amount (wages/payment/rent…) Produce goods that people want to buy in order to maximise profits Buy the goods that give them the maximum satisfaction with limited income
  7. 7. Incentive to maximise • What drives the whole system is the incentive to maximise • The key signal is price • Explain the chain reaction when: 1) Consumers buy a new product 2) There are more workers available 3) There are fewer workers available 4) A new firm comes into the market
  8. 8. If you were a clever moth what would you do having found an area of profit? What assumptions lie behind these ideas?
  9. 9. Today’s objectives • Discuss different economic objectives • Look at how resources are allocated to different groups
  10. 10. The role of prices and profits 1. Identify prices of a specific good or service that may be rising in the economy 2. Try to identify the reasons you think prices are rising 3. How would you expect this to impact on: a. Consumers? b. Firms currently operating in that market? c. Firms operating outside that market?

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