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Unit 1:

Opportunity
cost:
Measures the next best alternative forgone
If the government spends £10 billion on NHS the opportunity cost is the benefits from spending it
on education etc

Marginal analysis:
Firms use it as a decision making tool to maximise profits

Scarcity:
Situation that arises from unlimited wants…

Page 2

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"fuel prices in the UK are the highest in Europe"

Normative statement:
Opinions that contain a value judgement and cannot be proven/disproven, it is a
subjective statement
These statements influence economic decision making and policies
" children deserve free school meals

Markets
Any place or process that brings together buyers…

Page 3

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Competition
Motivated by self interest
Characteristics:
Limited government intervention eg tax, regulations
Businesses choose to allocate its resources to activities where they are likely to gain the
greatest rewards/profits
Referred to as capitalism
Price mechanism used to allocate resources
Government role:
Provision of public goods
Provision of legal system
Provision…

Page 4

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Division of labour
A process whereby the production procedure is broken down in a stages and workers are assigned
to a particular stage
Advantages:
Increased productivity
Improved skills
Specialised equipment
Less downtime
Workers concentrate on what they're good at
Disadvantages:
Tedious & monstrous jobs ­ high staff turnover which increases…

Page 5

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Economic changes
The boundary can move out if the economy has experience economic growth (increase in GDP)
due to:
Increase in resources available
Increase in the quality of resources
The expansion of further or higher education
Government training schemes
Increase in investment and development in technology
The boundary can shift…

Page 6

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An increase in demand refers to the whole demand curve shifting outward at every price level
A decrease in demand refers to the whole demand curve shifting inward at every price level
Reasons for a shift
A fall in the price of complementary goods
A rise in the price of…

Page 7

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It is important for firms to know the PED of their products when making pricing decisions, because
this affects revenue and profitability
If demand is elastic
Then a cut in priceincrease total consumer spending and revenue to the firm.
On the other hand, a rise in pricecauses total consumer spending…

Page 8

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The % of a consumers income allocated to spending on the good
Goods and services that take up a high proportion of a households income will tend to
have a more elastic demand than products eg a car or boat
Goods that take up a small % of income will…

Page 9

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Demand will increase in Y increases
Normal/luxury goods
Has a YED greater than 1
As Y increases, people will spend more on the good
Cross elasticity of demand
A measure of responsiveness of a quantity demanded of one good or service to a change in price
of another good or…

Page 10

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Movement along a supply curve
There is a movement only when there is a change in its price
A price rise causes an extension in supply
A fallin price causes a contraction in supply


Shifts in the supply curve
An increase in supply refers to the whole supply curve shifting…

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