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Economics: Basic concepts and techniques, Markets, Efficiency and Market failure.

Economics: asic concepts and techniques, Markets ...€¦ · Economics: asic concepts and techniques, Markets, Efficiency and Market failure

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Economics: Basic concepts and techniques, Markets, Efficiency and Market failure.

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Chapter Content Page Number

1 Economic methodology and the economic problem 3 – 12

Economic methodology

The nature and purpose of economic activity

Economic resources

Scarcity, choice and allocation of resources

Production possibility diagrams

2 Price determination in a competitive market 13 – 31

Law of demand and supply

Types of goods

Price elasticity and total revenue

Income elasticity of demand and types of goods

Cross of elasticity of demand

Price elasticity of supply

Consumer and producer surplus

Interrelating markets

3 Production, costs and revenue 32 – 38

Production and productivity

Specialisation, division of labour and exchange

Costs of production

Average revenue, total revenue and profit

Economies and diseconomies of scale

4 Competitive and concentrated markets 39 – 46

Market structures

The objectives of firms

Competitive markets

Monopoly and monopoly power

The competitive market process

Consumer and producer surplus

5 The market mechanism, market failure and government intervention in markets 47 — 63

How markets and price allocate resources

The meaning of market failure

Public goods, private goods and quasi – public goods

Positive and negative externalities in consumption and production

Merit and demerit goods

Market imperfections

An inequitable distribution of income and wealth

Government intervention in markets

Government failure

Planner for homework 64—65

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Economic methodology and the economic problem

Rishab has recently started his 2 year A-level studies at the local state school and he will have a week off

from school during autumn break in October. Rishab has saved £500 from his job working at McDonalds

during his summer holidays. Rishab has done his research over the internet using websites of several travel

businesses like expedia, booking.com, easy jet and Ryanair etc and concluded that he has enough money to

visit any one of the following cities: Berlin, Barcelona, Dublin, Paris and Madrid that are all in his bucket list.

He decides to visit Barcelona as Rishab is a passionate footballer.

Using examples from the above case study explain the following keywords:

What is Economics?

Scarcity:

Opportunity cost:

Hypothesis:

Positive statement:

Normative statement:

Needs vs. Wants:

Free goods:

Economic Goods:

What is economic welfare:

The production process:

Chapter 1

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Homework

Resources/Factor of production:

Capital goods:

Consumer good:

Table 1: Activity (Tick the statement to be a positive or normative)

Explain and state the different types of resources in figure 1.1:

Statement Positive Normative

Congestion charge has reduced the traffic in Central London.

Conservative government is a rich man government.

The UK is a nanny state.

The fall in interest rates will increase household spending.

One way of reducing obesity is to increase taxes on sugary products.

The British economy will do better outside the European Union

Air turbines are an eyesore and they should be restricted.

Boardroom pay is excessive and must be curbed.

Resources

Non—renewable

Reproducible Sustainable Recyclable Non—recyclable/finite

Renewable

Figure 1.1

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Explain the fundamental economic problem and how does economics try to resolve it.

Rational behaviour (Rational Choice Theory):

Understanding Production Possibility Frontier (PPF)

We have now established that resources are finite and firms within a country will have to make choices and

produce the best possible combination of goods to satisfy the needs and wants of the citizens of the

country. The PPF curve shows the different combinations of goods a country can produce with the given

resources. To understand the PPF concept we have country ‘Farm land’ and only two types of goods are

produced: farm tractors and potatoes (capital and consumer goods). In Table 2, there are

two scenarios provided to understand how PPF works:

Scenario A Scenario B

Inputs

Farm Tractor (Capital Goods) Units

Potatoes (Consumer

goods) Tonnes

Calculate the Opportunity

Cost

Inputs

Farm Tractor (Capital Goods) Units

Potatoes (Consumer

goods) Tonnes

Calculate the Opportunity

Cost

Land

, Labo

ur, C

apital an

d En

terprise

10 0

Land

, Labo

ur, C

apital an

d En

terprise

10 0

9 1000 9 2000

8 2000 8

7 3000 7

6 4000 6 6000

5 5000 5

4 6000 4

3 7000 3

2 8000 2 9000

1 9000 1

0 10000 0 10000

Table 2

ww

w.n

ort

ham

pto

nm

ath

san

dec

on

om

icst

uto

rs.c

o.u

k

6

P

lot

the

PP

F cu

rves

fro

m T

able

2 o

n t

he

pre

vio

us

pag

e fo

r co

un

try

‘Far

m la

nd

’ in

Gri

d 1

& 2

Mak

e n

ote

s o

f yo

ur

ob

serv

atio

n o

f th

e gr

aph

s (F

acto

r/re

sou

rces

su

bsti

tuta

bili

ty):

Gri

d 2

G

rid

1

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Using your observations from the previous page, explain the following keywords:

PPF curve:

Opportunity cost:

Straight Line PPF Curve:

Concave PPF Curve:

Economic growth:

Full employment:

Unemployment:

Productively efficient:

Labour productivity:

Capital productivity:

Technology:

Immigration:

Emigration (Outward migration):

Population growth:

Discovery of new resources:

Allocative efficiency:

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What is an economy and explain the different types of economies in figure 1.2:

Define markets and industry. State examples of them:

Markets:

Industry:

In figure 1.3, explain the different sectors of the economy:

Types of economies

Planned economies: Mixed economies: Purely market based

economies:

Primary: Manufacturing: Service

Figure 1.2

Figure 1.3

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Q.1. Explain the different points and shift of PPF

curve in figure 1.4.

Multiple choice questions (MCQ)

Q.2. In figure 1.5, a production possibility frontier for an economy is provided.

Which one of the following movements involves a trade-off between

providing more consumer goods and providing more of capital goods?

A D to A B B to E C B to C D C to B

The economy has had a lot of skilled inward migration. Adapt the diagram to

show the change in the productive capacity of the economy.

Q.3. Which statement is normative?

A. Happiness depends not on the absolute level of a person’s income but on his relative income

B. Income per head has increased by a very large amount but people are not happier today than they

were 25 years ago

C. The government should promote happiness as a more important goal than the maximisation of

production

D. People are happier in more equal societies

Q.4. The production possibility frontier in figure 1.6 shows a country

producing only wheat and guns and has shifted from FD to FE.

Identify the opportunity cost of producing OA Guns when the PPF is FD

Explain one factor for shift of PPF to FE.

In 2016, there was an outbreak of ‘Ebola virus’ in Sierra Leone, which killed 100s of people and affected

others. Using the internet you need to research about ‘Ebola crisis’ in Sierra Leone There are two views to

the issue:

1. Sierra Leone struggled in its fight against Ebola because so many of its doctors and nurses came to

Britain in the hope of better jobs and better life

2. In recent times the population growth in the UK that is fuelled by immigration, has placed

considerable strain on the country’s infrastructure, especially primary school places in England and

NHS maternity services.

Task: From your research make notes about the positive and negative effects of immigration to the UK and

that of its international partners. Using PPF Diagrams, assess the effects of immigration to the UK economy.

On the next page you have been provided with Table 3 to help you plan and some ideas for your research.

(18 marks)

Homework Figure 1.4

Figure 1.5

Figure 1.6

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Table 3: Plan – a good plan helps to write a good essay

Central Idea Advantages Disadvantages

Ageing Population

Skills Gap

Tax contribution

Diagrams (Used to explain key ideas):