Exam:
Define Every Key Term
Evaluation:
● Contradiction (Why it wouldn't work in certain circumstances) = However,Or, X says
that
● Long Run vs Short Run (Why something wouldn't work in LR VS SR) = Unable to do
X lr/sr
● Magnitude (Large/small enough to work)
● Importance and Significance of position
● Dependants (depends on…)
Use AP and AN to back evaluation
Evaluate what shifts mean for the macro economic objective, performance of the economy,
● Policy Point of view = will it overheat the economy Secondary effects such as
multiplier/accelerator effects/will automatic stabilisers bring economy back to its
original position
● Combination approach is needed
● Different industries need different regulation
● Priority X should be implemented over priority Y
● Depends On…
● Alternatives (Y should be implemented instead of X)
ALWAYS SHOWS INCIDENCE ON CONSUMERS AND PRODUCERS IN EXAMS
SAQs = 25 Mins
Section B = 60 Mins
Section C = 35 Mins
Asda and Sainsbury's Merger 2019
It takes time for consumers to switch their consumption
25:
Define
1 argument = On one hand = EV your points
2 argument = On the other hand = EV your points
Judgment = Most EV mark comes here = A Judgment is an answer to the question
Apply every point you make with anything you know
,Judgment:
Do not summarise = IN CONCLUSION…NO
Answer the question explicitly don't be on the fence "indirect Tax is/Isn't the most effective
way" - put the questions words in there
Justify your explicit answer why? Is it or is it not
Weigh up your points by saying how in important it is, that's not a summary
Get to the heart of the debate
Balance = explicit answer(Yes)….as long as the gov do X….businesses react in this way…
certain things change….as long as this risk is considered…. = Yes but multi policies is more
effective
Short Run - Long Run
Real world examples
Higher wage = increases worker productivity because there's a greater opportunity cost of
losing your job as a firm's costs increase = more likely to hit targets more
State the concepts you have learnt
Talk about how they affect consumers,firms,gov
Decipher the issues of the concepts and their impacts
Eval using qualitative and quantitative evidence supporting your judgement
Counter your own evaluations
Write a mini plan of each paragraph
The why and how of each point
Quote your Diagrams
Link back to the question in the end
Cost benefit analysis is a process used to estimate the net social rate of return for an
investment project. = Objectives,benefit to cost ratio,private benefit and costs, external
benefits, discount annual value of benefits, consider non monetised costs and
benefits, opp cost
Ev: biodiversity, water quality,air quality,heritage,social inclusion = hard to put a value on
these costs
,Uncertainties involved in major projects, long construction times, operating times that lasts
decades, uncertainty in population growth, future costs (energy), impact of new technologies
you may be investing in something that may be obselte soon
Max Price = Cant rise above = Make Cheaper = greater consumer surplus lower producer
surplus
Max Price = Unintended Consequences = firms leave the market
Min Price = Cant fall below = Make more expensive = greater producer surplus, lower
consumer surplus
Both = dead weight loss = inefficiencies
Tax cuts = comes at the cost of public goods
Commodities:
● Depends upon the degree of price elasticity of demand when supply shifts
● Depends on the degree of price elasticity of supply when demand shifts
● Use of buffer stocks brings price Stability
● Short term shocks dissappear over time
● Future market dampens price Volatility
● Easy to store if poro harvest
● Short run / long run
Microeconomics
Theme 1.1: The Nature of Economics
Social Science = Study of society and the relationships between individuals within that
society. (Theories in social sciences can be modified contrasted to natural sciences)
Economics = The study of choices and decision making in a world with limited resources
Microeconomics = Examines individuals, consumer, firms and markets within the economy
(Micro = small)
Economy = A system for the production of goods and services to satisfy people's needs and
wants.
,The central purpose of economic activity is to produce goods/services that people
need/want.
Need = must have (essential)
Want = would like (not essential)
Economic activity aim is to improve economic welfare ( Well being within society
Happiness,QOL,Real income,Education) = also known as utility or satisfaction
Economics uses theories/models based on observed behaviour. Predictions are made and
tested against evidence on this observed behaviour. If it survives the tests then it will be
known as a theory but this isn't true in all circumstances it may fail later as the test gets
tougher meaning it can be disproved,amended and rejected.
Conducting experiments in economics = Experiments are usually artificial situations due to
the fact that people may not react the same way as they would do in real life. This is due to
factors such as observational bias (the fact that they're being observed while making
choices) and selection bias (As people volunteer and aren't selected).
Scientific Method: (Demand Theory)
Observe consumer behaviour is the marketplace - Forming a hypothesis to explain how
consumers spend their money - Develop predictions from the new hypothesis - Using
evidence to test the predictions - Evidence does not support the prediction so the hypothesis
is amended/rejected OR - Evidence supports the hypothesis and becomes a theory -
Further tests Occur
Observe
Hypothesis
Predict using evidence
Test
Amended/rejected
Retest
The social sciences use a variation of this method called the social scientific method as
there is an inability to make scientific experiments the results of which can be proven time
and time again. This is due to the complexity of human nature and the significant number of
social interactions that are taking place in any economy at any given point in time. Economic
models are developed by economists once a hypothesis has been repeatedly proven or
rejected in different circumstances.
Economics makes predictions in a complex world. To reduce complexity economists create
economic models.
Economic Model = A simplified representation of reality used to provide insights into
economic decisions and events.
Ceteris Paribus = “Other things being equal”, used in economics where we focus on
changes in one variable while having other variables constant. = Change in 1 variable when
,all others are the same and isolates the impact of that 1 variable has == Allows economists
to simplify and explain causes and effects
Positive Statement = A statement that is favoured by economists due to their factual and
objective nature in which it can be tested or rejected by referring to the available evidence.
There is no need for a value judgement and Positive statements often help
prove/disprove/refine theories and hypotheses.
= Positive statements aren't linked to political viewpoint = they are objective and are based
on empirical evidence = Proven true or false =
Normative Statements = Statements that express a value judgement about what ought to
be,value judgments make normative statements very subjective and they cant be tested or
verified.
= Linked to political viewpoint
Value Judgement = Some agents opinion
Value judgments do influence individual behaviours and policies
Decision = Winners and Losers
Production = A process or set of processes that convert inputs into outputs of
goods/services
Capital Goods = A good which is used on the production of other goods/services = Any good
that helps increase future production (Construction Tools)
Consumer Goods = A good which is consumed by an individual to satisfy needs/wants
(Chocolate)
Factor of Production (Factor Inputs):
Capital = Machinery, tools, tech used in the production of goods and services
Enterprise = Economic agents that supply thee product on the market for a rate of return,
skills of the agents, ability to organise factor of production and taking on the associated risks
Land = Land and their resources
Labour = Skills and training of the workforce and their human input
All of these lead to the output of goods and services
Resources = Non Renewable = Finite = can never be replaced or reused in the future = Coal
Advantages of Non Renewable:
- More efficient and reliable
- Higher economic demand
Disadvantages:
- Causes Negative externalities
- Finite = will run out
- Global warming and climate change
, Resources = Renewable = Can be replenished = rate of extraction has to be less than the
rate of renewal
World = Finite Resources in the world (scarcity) (factors of production) to produce an infinite
amount of desire (wants) = Choices to be made = Choices lead to an opportunity cost =
choices are made by types of economies
When choices are made economic agents must always think about the next best alternative
at that time
Opportunity Cost = Is the measure of the value of the next best alternative forgone
Law of Increasing Costs = As the output of one good increases so does its opportunity costs
as those resources could have been employed in the output of something else
Scarcity = Resources are in limited supply and so cannot fulfil unlimited human needs
● Economic Goods = Scarce and have an opportunity cost
● Free Goods = No opportunity cost (Air)
- Scarcity = need to be efficient
- More Scarce = Higher Price
- Less Scrace = Lower Price
In a free market
Good Evaluation = Firms also experience and opportunity cost if they increase the output of
good X due to a profit incentive then they'll have to trade off fewer resources to produce
good Y. The redirection of resources leaves some consumers better off and others worse
off. == Winners and Losers are based on the Reallocation of resources
The Fundamental Economic Problem is how to make the best decisions about the
allocation of scarce resources (FOPs have Scarcity meaning they are limited in
supply) amongst competing uses and unlimited wants and needs to maximise and
improve economic welfare. Which results in an opportunity cost
Productive Possibility Frontier (PPF) = Shows the maximum combination of goods and
services that can be produced in a given time with the available resources being used
efficiency
PPF = Economic Model = Shows the maximum productive potential within an economy
Below PPF = Resources are economically inefficient and or unemployed resources. (Pareto
inefficient) use of resources however in the long run if the resources are moved towards
more efficient usage it can get to the point of on the PPF without an opportunity cost as
resources are being used more efficiently and reducing unemployed resources. Better usage
