A LEVEL ECONOMICS

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• A LEVEL ECONOMICS
• SECTION 1
• REVISION NOTES
• www.fetsystem.com

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Scarcity

• A situation when a choice is to be made
• Everyone in this world has to face this situation
  of scarcity
• It gives rise to the basic economic problem
• Scarce/limited resources and unlimited wants

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Choices at all levels

• Individuals
• Firms
• Governments

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Individuals

• The individuals are forced to make a choice
• Example
• An individual may have to chose whether to buy a
  shirt or a pant

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Firms

• Firms are also forced to make choices
• Example
• A firm may have to chose whether to spend the
  money or marketing department or research and
  development department

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Governments

• Governments which are considered all powerful too
  have to make choices
• Eg.
• Government has to make a choice whether to spend
  the public money on defense or healthcare

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Opportunity cost

• The next best alternative foregone when a choice
  is made
• Opportunity cost is never in money value
• The benefits which could have been received by
  taking an alternative action.

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3 Basic Questions

• What to produce
• How to produce
• For whom to produce

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Different Allocative Mechanisms

• Market economies
• Planned economies
• Mixed economies

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Market economies

• Market economy is an economy where resources are
  allocated by the price mechanism, the consumers
  determine what is produced.
• Very less role of the government
• Eg. United states

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Planned economies

• Planned system is an economic system where
  resources are allocated by the, the state
  determines what is going to be produced.
• No consideration given to market forces or the
  businesses
• Eg. USSR

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Mixed economies

• A form of economy which combines the good
  features or advantages of market and planned
  economy
• Business activity controlled by market forces
• The government provides the essentials
  education, health and security
• Eg.

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Production Possibility Curve(PPC)

• It is a graph that shows the different rates of
  production of two goods and/or services that an
  economy can produce efficiently during a
  specified period of time with a limited quantity
  of productive resources

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The margin decision making at the margin
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Positive statements

• Actual facts and figures which are both
  measurable and comparable

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Normative statements

• Opinions or suggestions
• Often called judgements

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Ceteris paribus
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Factors of production

• Land
• Labour
• Capital
• Enterprise

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Land

• Natural occurring resources used for production
  purpose
• Eg.
• Earth on which mills are built
• Water in which fish is found
• raw materials used to produce goods

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Labour

• Manual and mental effort to produce or deliver
  goods and services
• People who are willing or able to work are known
  as labour work force.
• Eg. Clerks
• Computer technician
• O level economics teacher

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Capital

• Manmade goods to produce other goods and services
• Capital is classified into capital goods and
  consumer goods
• Eg.
• Machines
• Factories
• Roads

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Enterprise

• The people who bring the other 3 factors of
  production together to produce goods and
  services.
• In this process they do the decision making and
  risktaking
• Eg
• Businessmen

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Division of labour
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Money
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Characteristics of Money
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Functions of Money
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Efficient resource allocation
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Economic efficiency
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Productive efficiency
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Allocative efficiency