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Preview of FULL Revision guide MACRO + MICRO ECONOMICS

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Welcome to the AQA AS
Economics Help Revision Guide
Tejvan R Pettinger
29 Campbell Road
[email protected]
You are welcome to leave feedback and ask further questions on Economics
It is not permissible to copy this guide for others. It is licensed for individual
use. www.economicshelp.org/
Copyright © 2011
Last updated April 2011

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Unit 1
Markets and Market Failure
· Nature of Economics
· Economic Objectives
· Scarcity / Choice / Opportunity Cost
· Production Possibility Frontiers
· Positive / Normative Economics
· Specialisation and division of labour
· Production
· Supply
· Demand
· Types of Goods
· Market Equilibrium
· Interrelationship between markets
· Elasticity
· Economies / diseconomies of Scale
· Inequalities in income / wealth
· Efficiency
Market Failure
· Monopoly
· Externalities
· Demerit / Merit goods
· Public Goods
· Immobilities…read more

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Basic Economic Concepts
Fundamental Economic Problem
· The central theme in economics is the production of goods and
services to satisfy consumer needs. Generally, higher levels of
production enable a higher level of economic welfare.
· Economics is concerned with the issue of scarcity. In society,
resources are limited. Therefore we have to deal with three issues:
o What to produce?
o How to Produce?
o For Whom to Produce?
Factors of Production
· Land ­ raw materials.…read more

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Production Possibility Frontiers (PPF)
A PPF shows the maximum output that an economy can produce if the
economy is maximising the use of its resources and operating efficiently.
Points on PPF Curve
· D = inefficient (Within PPF)
· A or B = Productively efficient. It is
impossible to choose more of
consumer goods or environment units
without an opportunity cost.
· C = impossible (without economic
Opportunity Cost and PPF
· A PPF can be used to illustrate the concept of opportunity cost.…read more

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Economic Growth and PPF
Economic growth requires an increase in the productive capacity of the
economy. This could occur due to:
· Discovering more raw materials
· Increase in size of work force (e.g. immigration)
· Increase in capital stock (machines / factories)
· Increase in labour productivity (due to better technology)
Economic growth will cause the PPF to shift to the right
Economic Objectives
Traditionally, we assume economics is concerned with maximising
consumption of goods and services.…read more

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· The individual demand curve illustrates the price people are willing to pay
for a particular quantity of a good.
· A change in price causes a MOVEMENT ALONG the Demand Curve,
E.g.…read more

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This refers to the quantity of a good that the producer plans to sell in the
· As price increases firms have an incentive to supply more because
they get extra revenue (income) from selling the goods.
· If price changes, there is a movement along the supply curve, e.g. a
An increase in price from P1 to P2 causes an increase from Q1 to Q2.…read more

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Market Equilibrium
The Price Mechanism refers to how supply and demand interacts to set the
market price and the amount of goods sold.
· If price were below the equilibrium at P2 then demand would be greater
than the supply. Therefore there is a shortage of (Q2 ­ Q1)
· Therefore firms will put up prices and supply more. As price rises there
will be a movement along the demand curve and less will be
demanded.…read more

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The Price Mechanism
Example: Factors that could explain a fall in the price
of a good
The price of a good, such as coffee, would fall if there was a fall in demand
and / or an increase in supply.…read more

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Impact of New Supplier on Market
· A new supplier will cause supply to shift to the right and depress the
market price. This could lead to lower profitability and could cause
other firms to leave the market.
· However, if new firms enter when demand is increasing, the price may
stay the same.
New Supplier Entering the Market when Demand is Increasing
In this case, both supply and demand rise, leaving price unchanged.…read more



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