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International A level Edexcel Economics complete notes for unit 1 - Markets in action $7.99
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International A level Edexcel Economics complete notes for unit 1 - Markets in action

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This document has detailed revision notes for International A level Economics Unit 1 - Markets in Action. These notes helped me achieve an A in Unit 1. I have included exam-style notes for topics such as externalities, government intervention, government failure, moral hazard, price/income/cross...

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Document information

  • July 19, 2023
  • July 19, 2023
  • 49
  • 2022/2023
  • Class notes
  • Mashur m alam
  • All classes

Subjects

  • ial
  • international a level
  • a level
  • a levels
  • unit 1
  • microeconomics
  • paper 1
  • economics
  • as

Written for

  • A/AS Level
  • PEARSON (PEARSON)
  • Economics
  • WEC11/01
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Available practice questions

International A level Economics Unit 1 (Microeconomics) definitions

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Some examples from this set of practice questions

1.

Positive statements

Answer: They are objective statements. They are based on facts that can be tested as true or false by investigating the evidence

2.

Normative statements

Answer: They are subjective statements. They are based on value judgements that cannot be tested as true or false by investigating the evidence

3.

Opportunity cost

Answer: It is the next best alternative forgone

4.

Renewable/ sustainable resources

Answer: Resources which replenish naturally after use and can be used again and again

5.

Non-renewable resources

Answer: Resources which will eventually be exhausted upon continued consumption. They are finite resources.

6.

Sustainability

Answer: The consumption of resources at a rate that will ensure its availability for the future generations

7.

Economic goods

Answer: Goods that use up scarce resources in their production and their consumption has an opportunity cost

8.

Free goods

Answer: Resources which are so abundant that their availability is not a constraint on economic activity. Their consumption has no opportunity cost

9.

Production possibility frontier

Answer: Shows the maximum output combinations of two goods that an economy can produce when all its resources are fully and efficiently employed

10.

Consumer goods

Answer: They directly provide satisfaction (utility) to consumers

Content preview

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 – PRODUCTION 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:




 A straight line PPF represents constant opportunity cost

,Distinction between capital goods and consumer goods
 Consumer goods: They directly provide satisfaction (utility) to consumers e.g. chocolate bar
 Capital goods: Those goods which produce other goods and services. They provide
satisfaction to consumers indirectly e.g. machinery, factory buildings

Significance of capital goods for productivity and economic growth




 The movement from W to Z increases the production of capital goods which will cause an
increase in the productive capacity of the economy resulting in an outward shift of the PPF and
economic growth
 However, the loss of consumer goods means that current living standards will fall

Factors causing an outward shift in the PPF (economic growth)
 An outward shift of the PPF represents an increase in the productive potential of an economy
and thus economic growth




 PPF will shift outward due to:
 Discovery of new natural resource e.g. oil and gas
 Technology advancements that lead to increased productivity of capital equipment
 Factors which lead to an increase in the size of the workforce e.g. immigration, increase
in the retirement age
 Improvements in education and training which increases the productivity of the
workforce

, Factors causing an inward shift in the PPF (economic decline)




 PPF will shift inward due to:
 Natural disasters e.g. earthquakes, floods which cause a destruction of productive
resources
 Depletion of natural resources
 Wars
 Global warming/climate change which may lead to a loss of farmland, rising sea levels
and more extreme weather
 Emigration of skilled workers




TOPIC 4 – DEMAND
Demand
 Demand refers to the willingness and ability of consumers to buy goods and services at given
prices over a given time period

Law of demand
 Ceteris paribus:
 If price decreases, quantity demanded increases
 If price increases, quantity demanded decreases

Demand schedule
Price (£) Quantity demanded
100 50
80 120
60 300
40 800
20 1400

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