AS Edexcel Unit 2 Economics (Micro)

Notes made from the specification .... I havent miss out anything, if its on the specification its in this document! I hate mind maps so i much prefer this layout!! 

Edexcel Unit 2 Economics - Microeconomics/ competitive markets

Hope it helps :) 

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  • Created on: 11-03-14 18:19
Preview of AS Edexcel Unit 2 Economics (Micro)

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Nature of economics
PPC and OC
Scarcity ­ use of our limited resources to provide for our material wants
There are insufficient resources to provide for everyone's wants
Renewable and non ­ renewable
Who, what and how to produce
PPF (Production possibility frontiers) ­ shows concepts of scarcity and OC
Shows max combinations of output a firm
can produce with a given amount of
resources or factors of production at any
one time
Factors of production
Land (natural resources)
Labour (productivity)
Capital (machinery)
Enterprise ­ brings these factors together taking risks in turn for rewards
We assume a country must pick between production of 2 goods ­ capital goods
(technology) and consumer goods (food)
C1 to C2 =
opportunity cost
Decrease = X1 toX2
Any point on the PPF
shows that all factors
of production are
being used/
Unattainable now
Insufficient Usage
Shifts ­ change in technology or economic growth
Movements ­ reallocation of resources
An individual or firm concentrates on the production of a limited range of goods
Increased productivity
Improves living standards
Demand can fall
Leading to unemployment
Resource depletion
Division of Labour

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One form of specialisation where a individual firm concentrate on the production of
a particular good or service
Production is broken down into a series of tasks, conducted by different workers
(the assembly line).…read more

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Valued judgments
Expression that something is right or wrong
Ought, should, fair, unfair, better or worse
What determines the demand for a good or service in a market?
Movement along the demand curve due to a change in price
Shifts in the demand curve due to increases or decreases in demand as a result of:
A fall in price of complementary goods
A rise in the price of substitute goods
Changes in tastes/fashion
Increased advertising
Increase in real incomes
Decrease in income tax
Changes…read more

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D of good B
X ED = % change in P of good A
Substitute goods ­ competitive demand, P and D increases ­ positive XED
% change in s
P ES =% change in P
PED >1 Elastic
PED<1 Inelastic
PED = 1 Unit elasticity
PED = 0 Perfectly inelastic
PED = Perfectly elastic
Elastic Supply Inelastic Supply Unit Elasticity
Movement along the Supply Curve
Only a movement when there is a change in its price.…read more

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Shifts in the supply curve
Improvements in technology
A reduction in labour costs
A reduction in capital costs
A reduction in transport
Discovering new oil fields
Increase in number of firms in the industry
Decrease in the market influences
Weather conditions…read more

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Reduction in indirect tax on oil
Increase in government subsidies
Market Equilibrium
Equilibrium means there is a balance in the market, with no tendency towards
price or output to change
Equilibrium is achieved when supply and demand are equal
Changes in supply and/ or demand will change equilibrium point
Consumer and Producer Surplus
Consumer Surplus is the extra amount of money a consumer is willing to pay for
a good or service in excess of that paid for it
Producer Surplus is the extra amount…read more

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Indirect tax ­ usually levied on the purchase of goods and services
- a tax on expenditure
Specific tax is charged as a fixed amount per unit of good; per litre of wine or
a packet of cigarettes
Ad valorem taxes ­ charged as a percentage of the price of a good; for
example VAT
Ad valorem tax Specific Tax
Incidence of an indirect tax
A combination of price inelasticity of demand and supply tends to place most of the
tax burden on consumers; addictive…read more

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Demand and Supply of Labour
Wage determination ­ in competitive labour markets the wage rate is determined
by the interaction of demand and supply
Firms ­ demand labour - to help produce goods and services
General population ­ supply labour ­ the work force of an economy
The Demand for Labour
Demand for labour is a Derived Demand ­ derived from the goods and services it
Demand for builders is derived by the demand for new housing
Key factors
Demand for the final product…read more

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Occurs when the price mechanism causes insufficient allocation of resources the
forces of demand and supply lead to a net welfare loss in society
There are different types of market failure:
The costs or benefits, which are external to an exchange
They are third party effects ignored by the price mechanism
External cost are negative externalities e.g.…read more

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Free market consumers- only concerned with private benefits from
consuming a good or service
The price consumers are prepared to pay for a good or service
Private benefits also referred to as the revenue that a firm obtains
from selling
Social Benefits
Private benefits + external benefits = Social benefits
MPB and MSB usually diverge from each other
External benefits increase disproportionately with output
It is possible that external benefit per unit consumed may remain
constant in which case MPB and MSB remain parallel…read more


Amy Mattu

this is unit 1!

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