OCR GCSE Economics Revision Guide

Unlock your full potential with this revision guide which focuses on the key content and skills you need to know. This revision guide perfectly matches the units of the OCR GCSE Economics specification.

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Revision Guide: Unit 1
Markets at Work

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A) The Basic Economic Problem
What is it?
The basic economic problem is the fact that RESOURCES are SCARCE (limited in supply) but WANTS are INFINITE
(never ending). As a result of this, consumers, producers and the government have to make CHOICES about how
to ALLOCATE scarce resources.
When we choice one thing, we often sacrifice or give-up something else. OPPORTUNITY COST is the highest
valued alternative that we forego because scarce resources allocated elsewhere.…read more

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In reality, most economies are mixed. This means there is a mixture of a public sector and a private sector owning
and allocating the scarce resources.…read more

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The main reasons for de-industrialisation are:
Increased competition from abroad (globalisation)
Historically low levels of investment and productivity in the UK mean that our goods are more expensive and
poorer quality
Higher wage and tax levels in the UK have contributed to higher costs and therefore higher, less competitive
prices in the UK
As the UK has got more economically developed and richer, the demand for services has risen as they are
income elastic. Businesses have developed to meet this need.…read more

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Regional specialisation A particular region is Firms in the industry may The area is very vulnerable
focussed on producing a benefit from external to a fall in demand for the
particular good or service. economies of scale (the product
This means that a lot of the idea that the growth of an
jobs in that area are INDUSTRY) leads to lower If demand falls there will
provided by the specialist average costs.…read more

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The characteristics and functions of money
If countries/firms specialise in production, there has to be a means of exchanging goods.
Historically, this was done by BARTER and SWAPPING goods, but this was difficult for a number of reasons. MONEY
allows exchange to take place.
The Functions of Money (what it does)
What does this mean Example
A means of exchange Money allows people to exchange I have a mountain bike to sell but
one good for another without finding want a racing bike.…read more

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B) What are Competitive Markets?
The Spectrum of Competition
(1) (2) (3) (4) (5)
(1) Perfect Competition: Hundreds of firms operate in a market and sell identical products. There are no
barriers to entry so lots of new firms can enter the market.
(2) Competitive Markets: Large numbers of firms exist in the same market. They sell very similar/identical
products. Barriers to entry are very low.…read more

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To Firms: investment
It may be easier to attract Their products are likely to
workers as there are lots of be more price inelastic
workers doing similar jobs. There is a constant pressure
This high supply of labour to cut costs and be efficient.
may keep wages down This means that firms have
To the Economy to spend a lot of time
Competition encourages managing resources and
firms to be more efficient ensuring labour productivity
and to keep their average is as high as possible.…read more

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Economic resources are
focussed on production and
not on marketing/advertising
Government Policies that can be used to increase competition/reduce monopoly
Policy How it works Advantages Disadvantages
Ban all monopolies Firms are not allowed to Removes the There is no incentive for
own more than 25% of disadvantages of firms to be efficient,
market share monopolies (see above) innovate, get better
because success is
Loses the potential gains of
monopolies (see above)
Privatisation Makes public sector Creates the benefits of Concern that consumers
monopolies private,…read more

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How are resources allocated in competitive markets
Resources will be allocated by MARKET FORCES.
Market forces are the forces of DEMAND and SUPPLY.…read more


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