Lecture notes

Economics Unit 1 - Introduction to markets and market failure

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A level Economics EdexcelA Lecture Unit 1 notes- Introduction to markets and market failure By Annabella Grant Got me a grade A They are perfect

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Uploaded on March 4, 2025
Number of pages 26
Written in 2024/2025
Type Lecture notes
Professor(s) Livingston
Contains All classes

a level
edexcela
economics
alevel2025
annabellagrant
introtomarkets and market failure
notes

1.1.4 PPF
 Representation of all possible combinations output using all available resources at full
employment
 If gradient of curve constant- opportunity cost is constant
 So gradient = OC
 If we want more pf something have to have less of something else- basic economic problem
 BEP- unlimited needs but limited resources
 Capital and consumer goods on axes
 Capital goods= goods already produced that are used to produce something else (computer
 Consumer goods= goods consumed by HH (Computer for netflix)
 Diminishing marginal returns= decreasing benefits from switching over resources of a g/s
 Inside PPF= not all resources used
 On PPF= using everything as normal
 Outside PPF= over using

If using all FOP at full employment , way to shift curve outwards is to increase quality and quantity of
capital
Easier to get better at using FOP than expanding our potential- easier to shift towards PPF then shift
curve

These short when quality for one of two g/s increase in Q/Q

1.1.5 specialisation of labour

Specialisation = when workers focus on one step of production process
Division of labour= splitting up production of g/s into many dif tasks

Increase output b/c division of labour, learning by doing and less transition time b/c not switching
b/w tasks (assembly line)

Advantages of DOL
 More efficient , workers paid more
 More available to buy
 Firms get more revenue
 More output
 More employment (don’t have to skilled in every step)
 Cheaper goods, more being produced so less expensive
 Workers have more leverage, don’t do their job=disrupts assembly pin
 Better quality, all very skilled in their own steps
 Higher SOL
Disadvantages
 Lower job satisfaction, repetitive
 Bad for environment, over-consumption ‘fast fashion’
 Workers more replaceable , jobs simple , less negotiation power
 Workers don’t have transferable skills, only know specific step
 Some ppl like variation of

Adam smith

,1.1..6 Free Market Economies, Mixed Economy and Command Economy

Basic economic problem=unlimited needs and wants but limited resources with which to meet those
Transition economy= when economy moves from command -> mixed
Challenges of TE= burdened by uncompetitive manufacturing sectors, not a lot of functioning capital
and labour markets, Successes of TE= economy improved when opens up to trade and market
forces
To solve the basic economic problem of scarcity, economic systems emerge or are created by
different economic agents within the economy
 Agents= consumers, producers, the government and special interest groups
 Economic system aims to allocate the scarce factories of production
Economic systems need to decide how to answer three fundamental economic questions
 What to produce? ( weapons for military or schools for children)
 Who to produce for? (Those who can afford to pay or for everyone)
 How to produce it? ( more labour or technology)

Adam Smith, Karl Marx and Friedrich Hayek Gad very different ideas about how to answer them

Free market = Friedrich Mixed economies= Adam Command economies= Karl
 Believed free markets  Advocated for free markets  Believed free markets
with no government w/some gov intervention lead to capitalism in
intervention provided the which owners of the FOP
most efficient allocation exploited the workers
of resources
 Inventoried information  Likes competition and  Creates inequality – lead
gaps between what wanted the individuals to to a breakdown between
economies required and own capital. classes
what the central planners
in command economies
were saying it required
 Gaps lead to shortages or  Thought everyone should  Share means of
surpluses of g/s in do what they like and what production and
command economies they are better at and that ownership with all
the free market economy workers in society’s,
should be owned by the abolition of private
ppl property
 Liked how markets  Recognised that  State would become
allowed creativity, governments ensure central planner and
innovation, efficiency in the allocation decide how 3 economic
entrepreneurship which of resources and provide questions be answered
was necessary for society goods
 Against command  Believed economies  Same amount for
economies, thought if function best when private echoing, only produce
small amount of people individuals work in their what think they need
nresponsible for own self interest,
allocation and motivated them to be
distribution of resources, labour productive
would be impossible to
meet everyone’s needs

, Free Market Mixed economy Command economy
 Economy that has no  A blend of the free  All of the resources are
government market and command owned by the state
intervention in the economy as and the government
allocation of resources individuals, firms and controls the
and distribution of g/s the government own distribution of g/s
FOP and distribute g/s
 All resources privately  Eg. UK Eg. North Korea
owned, government
protect property rights

Free Market
Pros Cons
 Profit incentive motivates people to  Wealth gets concentrated in hands of
work and develop ideas few, buying up scares FOP
 Greater variety of g/s  Increases inequality, gap between
 Competition leads to better quality of rich and poor increase, self interest
g/s  Product quality may fail, firms Lowe
 Competition leads to lower prices quality standard ti increase profits
 Competition encourages innovation  Workers exploited
and product development , higher  Resource depletion and
output environmental degradation often
 Profits, income and wealth -better SOL ignored
 More efficient use of scarce resources  Higher prices- firms increase prices to
 High economic growth- higher maximise profits
productivity, consumption and output

Command economy
Pros Cons
 Social equality is the goal of the  Receiving same wage disincentives
system, not maximising profits, less people from gaining skills or working
inequality harder
 All workers receive same wage ,  Lack of competition means that there
creates social equality is less innovation and product
 Less unemployment development, lower output, low
 Resources of Marion directed towards economic growth, low consumption,
urgent priorities no profit motivation
 Lower prices, government set prices  Continual lack of efficiency
 Access to higher SOL limited for most
of population
 Personal freedoms restricted

Role of state in a mixed economy

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