Document page
Economics IGCSEPDF 41
118 pagesrevision 46932
PDF 41
Page image rendered from the stored file at 110 dpi; it sharpens as you zoom. Outlines are placed from each region’s stored position on the page (612 × 792 pt).
readable
Source of this text: embedded text layer. The better of the embedded text and OCR is kept.
economic development. • Firms will only produce for consumers who can pay for them. Poor
people who cannot spend much won’t be produced for, as it would be non-profitable. • Only
profitable resources will be employed. Some resources will be left unused. In a market
economy, capital-intensive production is favoured over labour- intensive production (because it’s
more cost-efficient). This can lead to unemployment. • Harmful (demerit) goods may be
produced if it is profitable to do so. • Negative impacts on society (externalities) may be ignored
by producers, as their sole motive is to keep consumers satisfied and generate a high profit. • A
firm that is able to dominate or control the market supply of a product is called a monopoly. They
may use their power to restrict supply from other producers, and even charge consumers a high
price since they are the only producer of the product and consumers have no choice but to buy
from them. • Due to high competition between firms, duplication of products may take place,
which is a waste of resources.
*Public goods: goods that can be used by the general public, from which they will benefit. Their
consumption can’t be measured, and thus cannot be charged a price for (this is why a market
economy doesn’t produce them). Examples are street lights and roads.
*Merit goods: goods which create a positive effect on the community and ought to be
consumed more. Examples are schools, hospitals, food. The opposite is called demerit goods
which includes alcohol and cigarettes
*Subsidies: financial grants made to firms to lower their cost of production in order to lower
prices for their products.