Edexcel Econs AS Unit 1 Revision notes

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The Basic Economic Problem
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 and has no opportunity cost.
As the population of the planet expands and as production increases, the number of free goods are
diminishing, hence increasing the number of economic goods.
Infinite Wants
People's needs are finite ­ minimum necessities required to obtain a basic standard of living and survive as a
human being.
Human wants are unlimited ­ desires for the consumption of goods and services are never ending.
Basic Economic Problem
Resources have to be allocated between competing uses because wants are infinite whilst resources are
Every choice involves a range of alternatives, graded in terms of benefits to be gained from each alternative.
Opportunity cost: The benefit lost from the next best alternatives.
Free goods have no opportunity cost, no sacrifices necessary.
Production Possibility Frontier (PPF)
A curve which shows the different combinations of economic goods which an economy is able to produce if
all resources are fully and efficiently employed.
o A curve which shows the maximum potential level of output of one good given a level of output for
all other goods in the economy.
o Concave: Not all resources in the economy are as productive in one use compared to another ­ when
production expands, finite resources are used, hence greater cost.
Margin: A point of possible change.
Economic growth: An increase in the productive potential of an economy ­ outward shift in curve, when:
o The quantity of resources increase.
o The quality of resources increase.

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The Function of an 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.
o Land: All natural resources below the earth, on the earth, in the atmosphere and in the sea.
Non-renewable resources: Land resources which once used will never be replaced.…read more

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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 able to exchange their services for other goods and services.
o Barter trade ­ Swapping one good for another
o Money ­ Accepted as payment for goods received, services performed or repayment of past debt.…read more

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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 tax.
o May not be bothered with the paper work.
o Surveys are only reliable if there is accurate sampling and measuring, they are rarely as accurate as a
complete count.…read more

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Positive and Normative Economics
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
Normative economics: The study and presentation of policy prescriptions involving value judgements about
the way in which scarce resources are allocated.…read more

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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 and disequilibrium models
All static models are equilibrium models.
o May be stable ­ If there is a movement away from equilibrium, there will be an in-built tendency for
equilibrium to be restored.…read more

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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.
o Individuals ­ Consumers and producers.
o Groups ­ Firms, trade unions, political parties, families and charities.
o Government ­ To exercise power.
Establish or influence the relationships between groups through passing of laws.…read more

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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
working of the market economy.
o Government spending should be confined to the provision of public goods.…read more

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To what extent is government an efficient provider of goods and services compared to the private
o To what extent would the environmental impacts be taken into account?
The Demand Curve
The quantity of goods or services that will be bought at any given price over a period of time.…read more

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The Supply Curve
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.…read more


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