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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…

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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. The UK has a mixed economy that is moving towards being more free market:

Public Sector: Education, Health, Police, Defence

Private Sector: Water, Electricity,…

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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

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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…

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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…

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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…

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of competitors funds available for re-
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.…

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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…

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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. Demand and supply interact to give EQUILIBRIUM PRICE and

The equilibrium price is 35 pence

The equilibrium output is 250

Equilibrium means that this is…




Thank you! This is very useful in consolidating knowledge and to think you made this yourself!

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