The Perverse Demand Schedule

The perverse demand schedule is one that slopes upwards from left to right.

• The > the Price the > the demand - this does't obey the laws of demand.
• A perverse demand schedule can only happen in the case of Giffen and Veblen goods.

Veblen goods
Are goods based on the theory of conspicuous consumption. Where consumers believe that the > the price the > the quality and therefore are willing to spend more. Examples of this are perfume and cars.

Giffen goods

Production Possibility Frontiers

A Production possibility frontier, or a PPF shows the maximum combination of output that an economy can produce, using all available resources. It shows scarcity, choice and opportunity cost.

Figure one

• Point Y is unattainable as it is outside the PPF, if there was an increase in total resources or an improvement in technology the curve would move outward, making D attainable, shown in figure two. 
• Point X is inside the PPF due to either unemployed resources or an economy using its resources inefficiently.
• PPF'S show an opportunity cost so if you were producing products A and B at point B. You could reallocate your sources to either produce more of product A or B.  If you chose to produce more of good B, the opportunity cost is less of good A and vice versa.

Figure Two

• There can be an inward or an outward shift in the PPF as shown in figure two. A shift from AB to RS can be caused by a sudden decrease in resources, an example of how this can be bought about is a natural disaster.
• The shift from AB to PQ is due to an improvement of the technology available and therefore an increase in efficiency. 

Taxes and subsidies

A tax is an addition to manufactering costs after the levy implaced by the government. There are two different types of tax: unit/specific tax and Ad velorem tax. Unit tax is the same monatory tax regardless of the price of product. Whereas, Ad velorem tax is the same percentage of the price. For example VAT is 17.5%.

Specific tax

 

Adding tax casuses the supply curve to move from S1 to S2 the rise in price causes a decrease in quantity demanded. If the demand curve was very inelastic (steep) it is easier for producers to pass tax on to consumers. When the supply is inelastic the reverse happens.

 

Ad Velorem tax

 

With Ad Velorem tax the higher the price of a product the bigger the shift in the supply curve. The amount of shift is the same percentage off the price.

Subsidies

 

A subsidy is money given by the government to encourage the production of a good to lower the price and therefore increase the quantity demanded. If the demand curve was very inelastic the producer recieves a greater proportion of the subsidy.

 



My first Post

Hey :) It's Ellie here and today in economics we created our own blog. So abit about me: I am in lower sixth at the King's school Worcester and am studying AQA economics.  Up unitll September I hadn't done economics before so this is all pretty new to me. I intend this blog to be a way of keeping my notes and writing about my economical  experiences.