Revision for A level Economics section 1
Scarcity
A situation when a choice is to be made
Everyone in this world has to face this situation of scarcity
It gives rise to the basic economic problem
– Scarce/limited resources and unlimited wants
Choices at all levels
Individuals
Firms
Governments
Individuals
The individuals are forced to make a choice
Example
An individual may have to chose whether to buy a shirt or a pant
Firms
Firms are also forced to make choices
Example
A firm may have to chose whether to spend the money or marketing department or research and development department
Governments
Governments which are considered all powerful too have to make choices
Eg.
Government has to make a choice whether to spend the public money on defense or healthcare
Opportunity cost
The next best alternative foregone when a choice is made
Opportunity cost is never in money value
The benefits which could have been received by taking an alternative action.
3 Basic Questions
What to produce
How to produce
For whom to produce
Different allocative Mechanisms
Market economies
Planned economies
Mixed economies
Market economies
Market economy is an economy where resources are allocated by the price mechanism, the consumers determine what is produced.
Very less role of the government
Eg. United States
Planned economies
Planned system is an economic system where resources are allocated by the, the state determines what is going to be produced.
No consideration given to market forces or the businesses
Eg. USSR
Mixed economies
A form of economy which combines the good features or advantages of market and planned economy
Business activity controlled by market forces
The government provides the essentials: education, health and security
Eg.
Production Possibility Curve(PPC)
It is a graph that shows the different rates of production of two goods and/or services that an
economy can produce efficiently during a specified period of time with a limited quantity of productive resources
The margin: decision making at the margin
Decision making at the margin means when you have to chose between two products (alternatives)
Eg.
– You have $ 5 dollars and you have chose whether to buy a dvd worth $4 or drink a soda worth $3
It arises when you cannot buy both the products by your given income(scarcity)
Positive statements
Actual facts and figures which are both measurable and comparable
Eg.
The inflation rate for this year was 10%
Normative statements
Opinions or suggestions
Often called judgements
Eg.
The inflation rate for this year was very high
Ceteris paribus
Other factors or things unchanged
Other factors constant
Situation with other things the same
Factors of production
Land
Labour
Capital
Enterprise
Land
Natural occurring resources used for production purpose
Eg.
Earth on which mills are built
Water in which fish is found
raw materials used to produce goods
Labour
Manual and mental effort to produce or deliver goods and services
People who are willing or able to work are known as labour work force.
Eg. Clerks
Computer technician
GCSE Economics teacher
Capital
Manmade goods to produce other goods and services
Capital is classified into capital goods and consumer goods
Eg.
Machines
Factories
Roads
Enterprise
The people who bring the other 3 factors of production together to produce goods and services.
In this process they do the decision making and risktaking
Eg
Businessmen
Division of labour
Dividing a task into a series of smaller tasks
Each small task is done by a different person by which the productivity is increased
Money
Money is anything generally accepted for payment of goods/services
Characteristics of Money
Acceptability
Mobility
Divisibility
Scarcity
Similarity
Functions of Money
Medium of exchange
Unit of account
Store of value
Standard of deferred payment
Really good stuff… very useful..
really helpful