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A LEVEL ECONOMICSSECTION 1
REVISION NOTESwww.fetsystem.com
Scarcity Scarcity
A situation when a choice is to be A situation when a choice is to be mademade
Everyone in this world has to face Everyone in this world has to face this situation of scarcitythis situation of scarcity
It gives rise to the basic economic It gives rise to the basic economic problemproblem– Scarce/limited resources and unlimited Scarce/limited resources and unlimited
wantswants
Choices at all levelsChoices at all levels
IndividualsIndividuals FirmsFirms GovernmentsGovernments
Individuals Individuals
The individuals are forced to make a The individuals are forced to make a choicechoice
ExampleExample An individual may have to chose An individual may have to chose
whether to buy a shirt or a pant whether to buy a shirt or a pant
Firms Firms
Firms are also forced to make Firms are also forced to make choiceschoices
ExampleExample A firm may have to chose whether to A firm may have to chose whether to
spend the money or marketing spend the money or marketing department or research and department or research and development departmentdevelopment department
Governments Governments
Governments which are considered Governments which are considered all powerful too have to make all powerful too have to make choiceschoices
Eg.Eg. Government has to make a choice Government has to make a choice
whether to spend the public money whether to spend the public money on defense or healthcare on defense or healthcare
Opportunity costOpportunity cost
The next best alternative foregone The next best alternative foregone when a choice is madewhen a choice is made
Opportunity cost is never in money Opportunity cost is never in money valuevalue
The benefits which could have been The benefits which could have been received by taking an alternative received by taking an alternative action.action.
3 Basic Questions 3 Basic Questions
What to produceWhat to produce How to produceHow to produce For whom to produceFor whom to produce
Different Allocative Different Allocative MechanismsMechanisms
Market economiesMarket economies Planned economiesPlanned economies Mixed economiesMixed economies
Market economiesMarket economies
Market economy is an economy Market economy is an economy where resources are allocated by the where resources are allocated by the price mechanism, the consumers price mechanism, the consumers determine what is produced.determine what is produced.
Very less role of the governmentVery less role of the government Eg. United states Eg. United states
Planned economiesPlanned economies
Planned system is an economic Planned system is an economic system where resources are system where resources are allocated by the, the state allocated by the, the state determines what is going to be determines what is going to be produced.produced.
No consideration given to market No consideration given to market forces or the businessesforces or the businesses
Eg. USSREg. USSR
Mixed economiesMixed economies
A form of economy which combines A form of economy which combines the good features or advantages of the good features or advantages of market and planned economymarket and planned economy
Business activity controlled by market Business activity controlled by market forcesforces
The government provides the The government provides the essentials: education, health and essentials: education, health and securitysecurity
Eg. Eg.
Production Possibility Production Possibility Curve(PPC)Curve(PPC)
It is a graph that shows the different It is a graph that shows the different rates of production of two goods rates of production of two goods and/or services that an economy can and/or services that an economy can produce produce efficientlyefficiently during a specified during a specified period of time with a limited quantity period of time with a limited quantity of productive resources of productive resources
The margin: decision making at The margin: decision making at the marginthe margin
Positive statements Positive statements
Actual facts and figures which are Actual facts and figures which are both measurable and comparableboth measurable and comparable
Normative statements Normative statements
Opinions or suggestionsOpinions or suggestions Often called judgementsOften called judgements
Ceteris paribusCeteris paribus
Factors of productionFactors of production
LandLand LabourLabour CapitalCapital Enterprise Enterprise
Land Land
Natural occurring resources used for Natural occurring resources used for production purposeproduction purpose
Eg.Eg. Earth on which mills are builtEarth on which mills are built Water in which fish is foundWater in which fish is found raw materials used to produce raw materials used to produce
goodsgoods
Labour Labour
Manual and mental effort to produce Manual and mental effort to produce or deliver goods and servicesor deliver goods and services
People who are willing or able to People who are willing or able to work are known as labour work force.work are known as labour work force.
Eg. ClerksEg. Clerks Computer technicianComputer technician O level economics teacherO level economics teacher
Capital Capital
Manmade goods to produce other Manmade goods to produce other goods and servicesgoods and services
Capital is classified into capital goods Capital is classified into capital goods and consumer goods and consumer goods
Eg.Eg. MachinesMachines FactoriesFactories Roads Roads
Enterprise Enterprise
The people who bring the other 3 The people who bring the other 3 factors of production together to factors of production together to produce goods and services.produce goods and services.
In this process they do the decision In this process they do the decision making and risktakingmaking and risktaking
EgEg BusinessmenBusinessmen
Division of labour Division of labour
Money Money
Characteristics of MoneyCharacteristics of Money
Functions of MoneyFunctions of Money
Efficient resource allocationEfficient resource allocation
Economic efficiencyEconomic efficiency
Productive efficiencyProductive efficiency
Allocative efficiency Allocative efficiency