Unit 1 - Introduction to markets and market failure
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Unit 1 summary- introduction to markets and market failure
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Unit 1 - Introduction to markets and market failure
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PEARSON (PEARSON)
Full unit book of key details and notes for the whole of unit 1 ( other 3 units also published). These helped me pass my a level in economics with an A*. Includes everything you need to know for the whole of economics
Unit 1 - Introduction to markets and market failure
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, Introduction- the basics
Assumption: simplifying assumption used in analysis
Ceteris paribus assumption: all of the factors held constant
Economic agents: consumers , producers , government, -anyone engaged in some form of economic activity
Economic model: theoretical construct- building a hypothesis about behaviour that can be tested
Economic problem: arises from the scarcity of resources
economics: the study of the allocation of scarce resources among competition
Opportunity cost: the value of a choice measured in terms of the next best alternative option that is given up
Social science : study of human society
Value judgement : the value judgement contains a normative statement concerning what should happen
Natural science : studies of the natural world
Positive statements : testable
Normative statements : subjective arguments, or value judgements
Renewable resources : can be replenished
Nonrenewable : finite resources
Mean income : income per head of population
Median income: middle part of an income distribution
Capital goods: tangible assets, such as buildings, machinery, vehicles better than used to produce other goods and services
Consumer goods: thought, and consumed by households to satisfy current wants and needs
Economic decline: a contraction in the value of national output shown by negative rate of real GPD growth in recession
Economic growth: the long run increase in the country’s productive capacity, and capability is shown by growing real national output
Efficient allocation of resources: combination of scarce inputs and outputs, such that any change in the economy can make someone better with only by
making someone worse off
Infrastructure: includes physical, capital, such as transport networks
Production possibility frontier: combination of two or more products that can be supplied all available input efficiently
Productive potential: shows the maximum limit to output, capacity can be defined as the maximum output, their business can
produce in a given period with the available resources
Trade-off: arises when/where having more of one thing, potentially results, and having less of another
Unemployment: people of working age are willing/able to take paid work, but who do not currently have a job
, The nature of economics
• economics is a social science, meaning it is the study of human behaviour
• It investigates how scarce resources are allocated to provide for unlimited human wants
• Economic models are judged on how/ their ability to explain and predict consumer and producer behaviour, even when it might be unrealistic
CETERIS PARIBUS “ all other things being equal” or “all other things being the same”
This assumption is needed since economists cannot test MODELS in a controlled lab
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↳
The attempt to simplify and improve our understanding of how consumers and producers behave
Models are judged upon their ability to explain and predict even when unrealistic
Why do value judgements matter to…
Consumers: a cautious individual may prefer to save more of their income on a pension fund rather than on increased spending
Producers: prone to taking high risks, may prefer to spend cash reserves on developing new goods rather than have a safety net
Government: may prefer to cut income tax rather than increase expenditure on healthcare provision
Positive statements: objective and testable theories
Normative statements : value judgments and opinions
Micro economics: single factors and the effects of individual decisions
Macro economics: large scale, general economic factors (interest rates ect…)
Math skills
Nominal values: values unadjusted for inflation
• expressed at current prices
Real values: if data is adjusted for inflation or known as constant prices
Base period: one period of time
• data are then adjusted assuming that prices were the same throughout as in the base period
Index number: an indicator showing the relative value of one number to another form a base of 100. Often used to present an average of a number of statistics
% change = new-old
- X100
Old
Real value = index of comparison period
* nominal value
Index of current period
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