Economics Unit One Complete Notes

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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 is affected by economic decisions.
Wants are infinite but resources are limited.
When there is a high demand for something that there is little quantity of.
Over time as technology develops countries are able to produce more
however, as wants increase scarcity will continue.
For example, diamonds are low in quantity but there is high demand for
them therefore they can be sold for a higher price.
Needs are things you require to survive food, water, clothing, shelter,
Needs are limited there is a fixed amount of food, water or warmth an
individual needs.
Wants are unlimited there is never a fixed value of things an individual
What to make
How to make it
Who will get it
o Planned economies when the government decides how to
distribute ALL resources (Communist Countries)
o Capitalist economies Government has little or no say in how
resources are allocated.
o Mixed economies some resources and industries are owned by
the Government whilst others remain private
When choices are made alternatives are considered.
The next best alternative achieved in the same amount of time with the
same amount of income or resources is called the opportunity cost.
Sacrifices have to be made in order to produce more of one type of good.
For example, if a store has retail space for clothes it can not start selling
food there. Therefore, it has to sacrifice selling the clothes.
Economic Resources

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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:
o Primary: extracting raw materials, e.g. agriculture, mining, fishing
o Secondary: manufacturing e.g. publishing, chemicals, toys and
o Tertiary: industries that provide services e.g.…read more

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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 are not.
Some capital goods can be used for more than one purpose and are
therefore occupationally mobile.…read more

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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 may discourage the growth of firms.
Definition: When a firm increases in size so that the average cost per unit of
production is greatly decreased.
Types of economies of scale:
1.…read more

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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 produce a certain good for
example Honduras produce bananas because their climate allows them
Regional specialisation can also take place for example, StokeonTrent
specialises in pottery whilst London specialises in financial services.…read more

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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.…read more


Salma Khan

thank you!! excellent notes! x

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