AS-level Economics Summary

Pretty much a summary of the year 12 course (critical evaluation not included, this is an important skill you will need to develop) this just contains everything taught(in summary).If anything is missing please let me know. I have also found websites like www.dineshbakshi.com to be most useful.

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  • Created by: Devon
  • Created on: 16-12-12 11:43
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1
Year 12 Economic Notes
Basic Economic Ideas
Economic efficiency means the using of resources in such a way as to maximize the production of goods and
services. Economic efficiency exists when
No one can be made better off without making someone else worse off.
More output cannot be obtained without increasing the amount of inputs.
Production proceeds at the lowest possible perunit cost.
There are two requisites in order to achieve economic efficiency. These are
Productive efficiency
It is achieved when production of goods is achieved at the lowest cost possible.
Look at the PPC diagram below. Point X shows Productive inefficiency. This is because the output is not optimum
and there are still resources left unused. Whereas, Point Y shows productive efficiency, as this is the maximum
output which can be achieved through the utilizing all resources.
In longrun equilibrium for perfectly competitive markets, this is where average cost is at the base on the Average
Cost curve. (MC=AC). In the diagram below q is the point of productive efficiency.

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Allocative efficiency
Allocative efficiency is a situation in which the limited resources of a firm are allocated in accordance with the
wishes of consumers. An allocatively efficient economy produces an "optimal mix" of commodities. In short, the
products that are most wanted must be produced.
A competitive market can lead to Allocative efficiency because the firms are forced to produce what the customers
want.
Ceteris Paribus
Ceteris paribus is a Latin phrase, literally translated as "with other things the same.…read more

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Because people have different values, normative statements often provoke disagreement. An economist whose
values lead him or her to conclude that we should provide more help for the poor will disagree with one whose
values lead to a conclusion that we should not. Because no test exists for these values, these two economists will
continue to disagree, unless one persuades the other to adopt a different set of values.…read more

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Instead there is a continuum of different characteristics
What happens when countries move from command economy to
market economy?
CHARACTERISTIC COMMAND ECONOMY MARKET ECONOMY
From: government ownership To: private ownership
Ownership of resources:
From: centrally planned To: by the market
Decision making:
From: "the social good" To: self interest and profit
Motivation:
From: set by the government To: set by the market
Prices and Wages: often distorted change with market
From: inefficiency To: economic efficiency
Result: full employment periods of unemployment.…read more

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Limited Resources
On the other hand, we have limited resources to produce these goods and services we want. There are not enough
car factories to provide cars to everybody on earth. Everything on this planet has some limits except for our Wants.
When unlimited wants meet limited resources, it is known as Scarcity.
Alternative Uses
All the resources we have on this planet can be utilised in a number of way. They have alternative uses.…read more

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Divisibility
Good money is that which could be divided into small units without losing any value.
Durability
Money should be durable. It should not lose its value with the passage of time. The gold and silver coins do not
wear out quickly and quality of money remains the same.
Economy
It is important quality of good money that it should be made economically. If there is heavy cost on issuing more
money that is not good money.…read more

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Advantages
Producers and consumer have sovereignty to choose what to produce and what to consume but
production and consumption of harmful goods and services may be stopped by the government.
Social cost of business activities may be reduced by carrying out costbenefit analysis by the
government.
As compared to Market economy, a mixed economy may have less income inequality due to the role
played by the government.
Monopolies may be existing but under close supervision of the government.…read more

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Examples of Planned economies
North Korea
Cuba
Turkmenistan
Myanmar
Belarus
Laos
Libya
Iran
Iraq (until 2003)
Market Economic System
The central thought of this system is that it should be the producers and consumers who decide how to utilise the
resources. Thus, the market forces decide what to produce, how much to produce and for whom to produce.
Features
All resources are privately owned by people and firms.
Profit is the main motive of all businesses.
There is no government interference in the business activities.…read more

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Disadvantages
Unemployment: Businesses in the market economy will only employ those factors of production which
will be profitable and thus we may find a lot of unemployment as more machines and less labour will be used
to cut cost.
Certain goods and services may not be provided: There may be certain goods which might not be
provided for by the Market economy.…read more

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In the graph, if all the resources are used to produce Schools then there will be no Hospitals. If you move to the
other end then all the resources would be used to produce Hospitals and not Schools will be there in the economy.
Government has to move along this curve and decide the best possible combination of goods to produce. For
example Z, shows the possible combinations of School buildings and Hospitals.…read more

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