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Economics notes

The Basic Economic Problem

SPEC: Candidates should appreciate that the choices made to deal with the
problem of scarcity affect the allocation of resources. They should
understand the role of incentives in influencing choices.
Candidates should know that the environment is an example of a scarce
Resource which…

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SPEC: Economic Resources Candidates should understand the
economists' classification of economic resources into land, labour, capital
and enterprise, which are the factors of production. Candidates should also
understand the distinction between free goods and economic goods.

Human effort mental and physical
Can be split in to different sectors:…

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Refers to physical capital such as machinery, factories, railways, power
stations etc.
They are known as producer goods they are only wanted for their ability
to produce or provide other goods.

The mobility of Capital
Most machines and equipment are geographically mobile however things
like factories and railways…

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Free goods:

Economic goods:

The objectives of economics actors:
Candidates should understand that individuals, firms and governments may
a range of economic objectives.

1. Consumers/ Individuals: Maximise their own economic welfare
(could be utility or satisfaction) they want to make the most out of
their income.…

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SPEC: Candidates should be able to distinguish between positive and
normative statements. They should understand how value judgements
influence economic decision-making and policy.

Positive statements:
Also known as economic statements, these can be tested and proved
right or wrong.
For example `The NHS employs over 1 million workers' or `Females…

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SPEC: Candidates should be able to categorise and give examples of
economies of scale, recognise that they lead to lower average costs and
may underlie the development of monopolies. Candidates should be able to
give examples of diseconomies of scale, and recognise that they lead to
higher average costs and…

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A large firm may eventually experience a rise in the average cost of a

Causes of diseconomies of scale:
1. Control
o Monitoring thousands of employees in big firms can be more
difficult so productivity of individual employees may fall.
2. CoOperation
o Workers…

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SPEC: Candidates should understand the benefits of specialisation and why
specialisation necessitates an efficient means of exchanging goods and
services such as the use of money as a medium of exchange.

When we concentrate on one particular product or task.
For example it can be when certain countries…

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Low unit costs allow firms to remain competitive in the market in which
they operate.

Each worker can concentrate on what they are good at and build up their
Possibility of higher pay for specialised jobs.

Disadvantages/limitations of division of labour:
May eventually reduce efficiency and increase unit…

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SPEC: Candidates should understand the meaning of productive efficiency.
They should be able to illustrate the concept both on a production possibility
diagram, and on an average cost curve diagram.
Relates to how well a market or economy allocates scarce resources to
satisfy consumer needs.

Static Efficiency: In the…


Salma Khan

thank you!! excellent notes! x

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