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Summary International A level Edexcel Economics Unit 1 Notes $14.99
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Summary International A level Edexcel Economics Unit 1 Notes
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Summary International A level Edexcel Economics Unit 1 Notes TOPIC 1 – INTRODUCTORY CONCEPTS What is economics? • Economics is the concerned with the ways by which societies organise scarce resources in order to satisfy wants. Economics as a social science • Economics is a social sci...

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International A level Edexcel Economics Unit 1
Notes


TOPIC 1 – INTRODUCTORY CONCEPTS
What is economics?
 Economics is the concerned with the ways by which societies organise scarce resources in
order to satisfy wants.

Economics as a social science
 Economics is a social science which concerns the study of human behaviour
 As a result, economists cannot conduct scientific laboratory experiments like in natural
sciences
 They typically examine what has already occurred in order to test their theories

Theories and models
 Economists develop models or theories, which are simplified representations of the world

The use of assumptions in building models
 When building models, economists use the “ceteris paribus” assumption which means “other
things being equal”

Positive and normative statements
 Positive statements are objective statements
 They are based on facts that can be tested as true or false by investigating the evidence
 Example: EU farm subsidies increase the supply of agricultural commodities


 Normative statements are subjective statements
 They are based on value judgements that cannot be tested as true or false by investigating the
evidence
 Example: Subsidies paid to farmers in the EU are unfair to farmers in Ghana
 These may include key words such as should, fair, unfair, too high, too low etc.



TOPIC 2 – THE ECONOMIC PROBLEM

,Scarcity
 Scarcity exists because resources are finite whereas human wants are infinite
 The basic economic problem is that human wants are unlimited but resources are scarce
(limited)
 Scarcity required economic agents to make choices about how to allocate our limited
resources to provide for our material wants
 This involves 3 fundamental economic questions:
 What to produce?
 How to produce?
 For whom to produce?

Opportunity cost
 It is the next best alternative forgone

Factors of production
 Land: It includes all natural resources (gifts of nature) such as minerals, fertile land, resources
found in the sea.
 Labour: It refers to the physical and mental effort by workers in the production process
 Capital: It refers to man-made resources which aid in the production process. Capital helps to
generate further output e.g. machines
 Enterprise/entrepreneurship: Entrepreneurs are individuals who take a business risk in
organising the other factors of production in order to produce a good or service. They enjoy all
the profit or bear all the loss

Renewable and non-renewable resources
 Renewable/sustainable resources: Resources which replenish naturally after use and can be
used again and again. For example, solar energy, wind power, forestry, hydro.
 Non-renewable resources: Resources which will eventually be exhausted upon continued
consumption. They are finite resources. For example, coal, oil, natural gas (fossil fuels)

Sustainability
 It refers to the consumption of resources at a rate that will ensure their availability for the future
generations

Types of goods
 Economic goods: Goods that use up scarce resources in their production and their
consumption has an opportunity cost
 Free goods: Resources which are so abundant that their availability is not a constraint on
economic activity. Their consumption have no opportunity cost. For example, sunlight or air




TOPIC 3 – PRODUC TION POSSIBILITY
FRONTIER (PPF)

,PPF
 PPF shows the maximum output combinations of two goods that an economy can produce
when all its resources are fully and efficiently employed




 Any point on the PPF shows that resources are fully employed (efficient) e.g. point M
 Any point inside the PPF shows that unemployed resources (inefficient) e.g. point X
 A movement from X to M shows reduction in unemployed resources




 Point Z is currently unattainable with the given amount of resources and the current state of
technology
 Point Z can only become obtainable in the long run if there was economic growth

PPF and opportunity cost

,  What is the opportunity cost of moving from M to N? Answer: 100 capital goods
 What is the opportunity cost of increasing production of capital goods from 700 to 800?
Answer: 500 consumer goods




 What is the opportunity cost of producing 800 cars? Answer: 200 computers
 What is the opportunity cost of producing 1000 computers? Answer: 200 cars

Shape of the PPF
 Concave shaped PPF:




 The PPF is concave in shape because as more of one good is produced an increasing
amount of other is forgone i.e. opportunity cost increases
 Straight line PPF:

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