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The Basic Economic Problem
Scarcity
The world's resources are finite/ scarce: Resources which are limited in supply so that choices have to be
made about their use.
Economic goods: Resources which are scarce because their use has an opportunity cost.
Free goods: Resources which are not scarce/ unlimited in supply…

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The Function of an Economy
Economy
A system which attempts to solve the basic economic problem.
o What is to be produced?
o How is production to be organised?
o For whom is production to take place?

Economic Resources
Factors of production: Resources available for use in the production process.…

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Sectors of the Economy
Primary sector: Raw materials are extracted and food is grown.
Secondary/ Manufacturing sector: Raw materials are transformed into goods.
Tertiary/ Service sector: Produces services.

Money and Exchange
Exchange is required in specialisation ­ Workers will only specialise in something if they know that they will
be…

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Economic Data
Collection and Reliability of Data
Uses of data:
o Data may be used to refute or support a theory.
o Data may be required to provide support for particular policies/ make policy recommendations.
Information may be inaccurate as:
o Some exporters and importers will conceal transactions to avoid…

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Positive and Normative Economics
Introduction
Positive Economics: The scientific or objective study of the subject which is concerned with finding out how
economies and markets actually work.
o Positive statements: Statements about economics which can be proven to be true or false, which can
be supported or refuted by evidence…

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o General models: Models which contain a larger number of variables.
o Partial models: Models which contain relatively few variables.
Models in which most variables are assumed to be "Ceteris Paribus" ­ The assumption that all
other variables within the model remain constant whilst one change is being considered.

Equilibrium…

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Free Market and Mixed Economies
Economic systems
A complex network of individuals, organisations and institutions and their social and legal interrelationships.
Function: To resolve the basic economic problem.
Actors:
o Individuals ­ Consumers and producers.
o Groups ­ Firms, trade unions, political parties, families and charities.
o Government ­ To…

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Need to have powers to break up monopolies, prevent practices which restrict free trade and control the
activities of trade unions to avoid the malfunction of markets.
o Without government, there will be anarchy (lawless society).
o Government intervention ­ Regulation should be the minimum necessary to secure the orderly…

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o To what extent is government an efficient provider of goods and services compared to the private
sector?
o To what extent would the environmental impacts be taken into account?

The Demand Curve
Demand
The quantity of goods or services that will be bought at any given price over a…

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The Supply Curve
Supply
The quantity of goods that sellers are prepared to sell at any given price over a period of time.
Affected by:
o Costs of production
If costs of production increases, firms will attempt to pass on the increase to consumers by
increasing prices.
Rise in the…

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