3. Today’s objectives
• Discuss different economic
objectives
• Look at how resources are
allocated to different groups
4. The 4 main players in the
economy
All have competing
and different interests
What are they?
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. 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. 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. If you were a clever moth what would you do having found an
area of profit?
What assumptions lie behind these ideas?
9. Today’s objectives
• Discuss different economic
objectives
• Look at how resources are
allocated to different groups
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?
