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Contents
UNIT 1 COMPETITIVE MARKETS
UNIT 1.3.1 WHAT IS THE NATURE OF ECONOMICS?
THE BASIC ECONOMIC PROBLEM
OPPORTUNITY COST
FACTORS OF PRODUCTION
PRODUCTION POSSIBILITY FRONTIERS
SPECIALISATION
ECONOMIC STRUCTURES
NORMATIVE, OR POSITIVE?
UNIT 1.3.2 ­ WHAT DETERMINES THE DEMAND FOR A GOOD OR SERVICE IN A MARKET?
MARKETS
DEMAND
REVENUE
PRICE, INCOME AND CROSS ELASTICITY
PRICE ELASTICITY OF DEMAND
ELASTICITY AND TOTAL REVENUE
INCOME ELASTICITY OF DEMAND
CROSS ELASTICITY OF DEMAND
DETERMINANTS OF ELASTICITY
UNIT 1.3.…read more

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Unit 1 Competitive Markets
How they work and why they fail.
This unit provides an introduction to the nature of
economics and examines how the price mechanism
allocates resources in markets. It analyses the nature of
market failure, its causes and possible policy remedies.…read more

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Unit 1.3.1 What is the nature of economics?
The Basic Economic Problem
The basic economic problem is that we have infinite wants and
scarce resources therefore choices have to be made.
Opportunity Cost
Because of the basic economic problem, governments, firms and
consumers must make choices as to what we should make, how
we should make it, what should we spend our income on etc.…read more

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Production Possibility Frontiers
A country can choose to produce Guns and Butter.…read more

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When producing a PPF always remember to:
Draw lines with arrows on the end.
Label the axis with accordance to the information given in
the case study.
Draw the PPF (must be straight if the opportunity cost is
constant.
Make sure it has a zero.
Label the levels of output if required.
Draw all arrows if the PPF shifts.
Advantages Disadvantages
To develop skills enables certain Works may feel alienated from
tasks to be performed more efficiently. their work, and output per
worker may decline.…read more

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Economic Structures
8…read more

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Normative, or Positive?
A normative statement is one that can be judged, or is an
opinion. This means that it is not a fact, nor can be proven.
An example is:
"The world would be a better place if the moon
was made of green cheese."
This is a normative statement as it expresses a judgment about
what ought to be. It cannot be verified by mere appeal to facts.
A Positive statement is one which can be proven by facts and
evidence.…read more

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Unit 1.3.2 ­ What determines the demand for a good or
service in a market?
Markets
A market is a place where buyers and sellers come together to exchange goods
and services.
For example: Internet shopping, telesales, fruit and veg stalls, supermarkets or
the hairdressers.
Sellers Firms Suppliers
Consumers Households Demand
A consumer market takes place within a firm and consumer
exchange.
A producer market takes place between two firms: usually a
supplier (secondary) and a tertiary sector business.…read more

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