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CHAPTER ONE SUMMARY- the reasons for individuals, organisations

and societies to make choices

Economics: the study of how to allocate scarce resources in the most effective way
Economic problem: how to allocate scarce resources among alternative uses
Household: group of people whose spending decisions are connected

Economics is split into…

Page 2

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Defence, social services, education , transport and the national health service
They need to make sure that the money has been allocated in the best way possible- this is critical
for the NHS at present because we have an expanding and ageing population in the UK ­ spend it on…

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DIVISION OF LABOUR
In order to be competitive labour costs must be kept as low as possible
Division of labour: the specialisation of labour where the production process is broken down into
separate tasks
Adam Smith ­ 18th century- the production of pins was more efficient when the process was…

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There are two reasons why shifts occur:
1. More resources or economic growth ­ change in productive potential of an economy
changes
2. Technological change- mostly positive
Economic growth: A change in the productive potential of an economy
Productive potential: the maximum output that an economy is capable of producing…

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THE COMMAND OR CENTRALLY PLANNED ECONOMY
Like the market economy, the command economy only exists in theory
Command economy: an economic system in which most resources are state owned and also
allocated centrally
In this economy, the government has a central role in all decisions
Decision making is by planning…

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China has had phenomenal sustained growth over the past 15 years based on the control
management of the economy
China still gives opportunities to foreign investors as well as domestic investors
To a degree most economies seem to fit in with the definition of a mixed economy

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