A complete summary of all topics for EDUQAS/WJEC economics. Written for exams in June 2022. Includes microeconomics, macroeconomics and global economics. It should also cover the majority of topics for all other exam boards.
Factors of production:
- Land. Natural resources.
- Labour. Quantity and quality or workers
- Capital. Man made aids to production.
- Enterprise. Someone who organises the FOP.
- The maximum a country can produce is dependent upon FOP.
Labour productivity is output per worker per period. Labour specialisation can lead to an increase in
labour productivity and increase in production.
If an economy has limited amount of resources they wont be able to produce everything they want.
They will have to choose what they can produce with their FOP, the quantity and who will get what
is produced.
Different economic systems:
- Centrally planned. Decisions are made by the state/government.
- Free market. Decided by price mechanism. Supply and demand.
- Mixed economy. Decided by government and price mechanism.
Opportunity cost – next best alternative foregone.
Shift in PPF:
- FOP increase in quality.
- FOP increase in quantity
,Demand and supply in product markets:
Utility – satisfaction
Types of demand:
- Derived. Demand for a good or service that results from demand of something else. Eg
mobile phones and lithium batteries. Eg fish and chips
- Joint. Demand for complement goods. Goods that go together.
- Composite demand. Demand for a product that has multiple uses eg eggs
- Competitive. Demand for goods that are in competition. Eg substitutes
Supply – quantity of goods that firms are able and willing to provide at various prices.
- Demand curve for labour shows how many workers will be hired at any given wage rate over
a given period of time.
- Firms base their decision of number of employees on the extra revenue they gain for hiring
an extra employee
- MRP = marginal revenue product
- MP = marginal product
- MR = marginal revenue
- MRP = MP X MR
- MRP is also the demand curve for labour
- MRP will start to decrease because of diseconomies of scale and lower productivity
- The firm should hire the number of employees where wage rate intersects MRP curve
,Labour market issues:
- Skills gaps. If there is insufficient training and education, skill gaps will exist which will cause
insufficient labour supply to do highly skilled jobs. This can be solved by: giving financial
assistance for university, internet training, vocational courses.
- Labour immobility. Labour doesn’t move to where it is in greatest demand. Geographical
immobility is when workers are unwilling or unable to move to a different region often
because of high house prices. Industrial immobility is when workers don’t move between
industries when demand for another industry increases. Occupational immobility is when
workers find it difficult to switch between jobs in an industry. For example switching from
doctor to dentist. Solutions for labour immobility:
Training and retraining schemes
More information about job vacancies
Subsidies to labour or firms to assist relocation
Incentives for firms to relocate in poorer areas by providing tax breaks
- Unequal distribution of income.
Elasticity:
Elasticity – the responsiveness of one variable to change in another variable.
Price elasticity – how responsive quantity demanded is to a change in price.
PED = %change in quantity demanded
% change in price
- Sign is always negative
- More than 1 = elastic
- Less than 1 = inelastic
Determinants of price elasticity:
- Number of substitutes
- Proportion of income spent on the good
- Branded or generic
- How much of a necessity it is
Income elasticity – how responsive quantity demanded is to a change in incomes.
YED = % change in quantity demanded
% change in income
- Positive = normal good
, - More than 1 = demand for the product is price elastic
- More than 2 = luxury.
- Negative = inferior good
- Less than 1 = income inelastic
Determinants of income elasticity:
- Nature of the good. Luxury etc
- Individual preference
- Proportion of income
Cross elasticity – the responsiveness in demand for one product in response to a change in price of
another product.
XED = % change in demand for one product
% change in price of another product
- Positive = substitutes. As the price of one goes up demand for the other goes up
- Less than 1 = cross inelastic = relationship is weak
- Negative = complements. As the price of one goes down demand for the other goes up
- More than 1 = cross elastic = relationship is strong
Determinants of XED:
- How close they are as substitutes
- How close they are as complements
- Time period. Longer time period = more substitutes and complements
Price elasticity of supply – how responsive supply is to a change in the price of a product
PES = % change in quantity supplied
% change in price
- Sign is always positive as when price increases firms supply more
- Greater than 1 = supply is price elastic
Determinants of PES:
- Level of stock of the product held. Higher level of stock held makes it easier to increase
quantity supplied.
- Storable or perishable.
- Amount of spare capacity in the industry. Higher capacity means that supply can be
increased easier.
- Time period being considered.
- Barriers to entry of the market
- How easy it is for firms to obtain more FOP
Resource allocation:
It is assumed an invisible hand guides the economy to the most efficient outcome:
- Households make rational decisions to maximise their utility for any given outcome
- Firms make decisions on what goods to produce to maximise profits.
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