OCR GCSE Economics Unit A591 Notes

Here you will find my notes on OCR GCSE Economics Unit A591 (Unit 1): How the Market Works. I have taken extracts from the specification of what we need to know and then made detailed notes underneath on what the specification is asking for.

I have also made a document like this for Unit A592: How the Economy Works, Unit A593: The UK Economy and Globalisation and AQA GCSE Computer Science.

Enjoy!

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Page 1

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OCRGCSEEconomicsUnitA591Notes

identifyandunderstandexamplesofthefourfactorsofproduction
· Land
· Labour
· Capital
· Enterprise

understandwhatismeantbythebasiceconomicproblem
· Resourcesarescarcebutourwantsareinfinitethereforeourwants
exceedtheresources.

understandwhyandhowchoicesaremade
· Choicesneedtobemadeonhowtoallocateresourcesfairlyandequally.

applytheconceptofopportunitycosttoalleconomicdecision-makers
· Opportunitycostisthenextbestalternativeforegonewhenmakinga
choice.

showanappreciationofhowresourcesareallocatedbyindividuals,firmsand
governments
· Resourcesareallocatedthroughouruseofmoneyandbygovernment.

understandthemeaningofprimary,secondaryandtertiarysectors
· Theprimarysectorinvolvestheextractiononrawmaterialsfromthe
land.
· Thesecondarysectorinvolvesthemanufactureofrawmaterialsinto
finishedgoods.
· Thetertiarysectorprovidesservices.

identifyandexplainthekeyfeaturesofmarketandmixedeconomies
· Inamarketeconomy,resourcesareallocatedbyprivatebuyersand
sellers.Allresourcesareprivatelyownedandpeopleactintheirself-
interest.
· Inaplannedeconomy,allresourcesareallocatedbygovernment.
Governmentownseverythingandcontrolspricesandincomes.

identifyandexplainthekeydifferencesbetweenpublicandprivateenterprises
· Publicenterpriseisthegovernmentsectoroftheeconomywhere
organisationsareownedandrunbygovernment.
· Privateenterpriseisthesectoroftheeconomywherefirmsareowned
andrunbyprivateindividualsandgroups-theirmainaimisprofit
maximisation.…

Page 2

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OCRGCSEEconomicsUnitA591Notes

evaluatethecostsandbenefitsofspecialisation
Benefitstothe Coststothefirm Benefitstothe Coststothe
firm worker worker
Workersbecome Qualitymaysuffer Workers'specific Boredomforthe
quickerandbetter ifworkersbecome skillswillbe workerastheydo
atproducing bored improved thesamejob
goods(more everyday
productive)
Becauseof Topquality Workerswillgeta Workerscould
increased workerswillbe betterpayasthey struggletofind
productivity, moreexpensive dotheirjobbetter anotherjobif
production theirskillsarenot
becomescheaper needed
pergood(lower
averagecosts)
Production/ Workersmaybe
outputlevelswill replacedby
increase machinery

explainhowandwhyindividuals,firmsandcountriesspecialise
·…

Page 3

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OCRGCSEEconomicsUnitA591Notes

explainwhatismeantbyacompetitivemarket
· Amarketsituationinwhichthereisalargenumberofbuyers(demand)
andsellers(supply).

understandtheimplicationsforbusinessesofoperatingincompetitivemarkets
· Competitiondrivesabusinesstobecomemoreefficientasthebusiness
willwantallofthecustomersinthemarket.
· Ifafirmhasagoodvarietyofproductsatagoodqualityandquantitythen
theycanattractawiderrangeofcustomers.
· Thiscanhelpthebusinessthriveandearnhigherprofits.
· Thebusinesscanalsogrowlargerandgainmarketshare.
· Howeverifabusinessdoesnotsatisfythenitwillfailandcustomerswill
gotootherfirmstobuytheirproducts.

explainthemeaningofmonopolyandmonopolypower
· Monopolyisasituationinwhichthereisonlyonefirmsellinginamarket.
· Monopolypoweriswhenafirmhasmorethan25%ofthemarketshare.

describeandevaluatethecausesandconsequencesofmonopolypower
Causesofmonopolypower
· Mergerandtakeover
· Statutorymonopoly
· Internalexpansion
· Branding
· Costbarriers
Advantagesofmonopolies Disadvantagesofmonopolies
· Researchanddevelopment · Insufficientallocationof
· Internationalcompetitiveness resourcesbytheprice
· Exploitationofeconomiesof mechanismasconsumershave
scale lesschoice…

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OCRGCSEEconomicsUnitA591Notes

constructanindividualdemandcurveandamarketdemandcurvefrom
consumerdata






explainshiftsof,andmovementsalong,thedemandcurve
· Population
· Advertising
· Substitutes(priceof)
· Income
· Fashionandtrends
· Interestrates
· Complements(priceof)
· Legalrequirements
· Seasonalfactors

understandthemeaningofpriceelasticityofdemand
Theresponsivenessofthequantitydemandedtoachangeinprice.

understandandconstructgraphstoillustratepriceelasticityofdemand




priceelasticdemand




priceinelasticdemand



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OCRGCSEEconomicsUnitA591Notes





unitelasticdemand




perfectlyelasticdemand




perfectlyinelasticdemand

understandtheimplicationsofpriceelasticityofdemandforrevenue
· Ifdemandispriceelasticthenafallinthepricewillcausetotalrevenueto
increase.
· Ifdemandispriceinelasticthenariseinthepricewillcausetotalrevenue
toincrease.

explainwhatismeantbysupply
· Supplyisthequantityaproduceriswillingtoproduceatagivenpriceina
givenperiodoftime.





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Page 6

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OCRGCSEEconomicsUnitA591Notes

constructanindividualfirm'ssupplycurveandamarketsupplycurvefrom
productiondata






explainshiftsof,andmovementsalong,thesupplycurve
· Productivity
· Indirecttaxes
· Numberoffirmsinthemarket
· Technology
· Subsidies
· Weather
· Costsofproduction

understandthemeaningofpriceelasticityofsupply
· Theresponsivenessofthequantitysuppliedtoachangeinprice.

understandandconstructgraphstoillustratepriceelasticityofsupply




priceelasticsupply




priceinelasticsupply




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OCRGCSEEconomicsUnitA591Notes





unitelasticsupply




perfectlyelasticsupply




perfectlyinelasticsupply

understandtheimplicationsofpriceelasticityofsupplyonbusinesses
· Ifsupplyispriceelasticthenafallinthepricewillcausetotalbusinessto
increase.
· Ifsupplyispriceinelasticthenariseinthepricewillcausetotalbusiness
toincrease.

understandhowtheinter-relationshipbetweenmarketforcesdetermines
equilibriumprice
· Wherethedemandandsupplycurvesmeetthisiscalledtheequilibrium.
Thisisalsothemarket-clearingprice.

understandandexplaintheimpactofcompetitiononprice
· Acompetitivemarketoccurswhenthereisnosingleindividualfirmthat
caninfluencetheprice.Thepriceisdeterminedbytheforcesofdemand
andsupply.





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OCRGCSEEconomicsUnitA591Notes

explainandassesstheeffectsoftaxesandsubsidiesonpriceandquantityin
competitivemarkets
· Taxeswilldecreasethesupplythereforethepricewillriseandthe
quantitywillfall.
· Subsidieswillincreasethesupplythereforethepricewillfallandthe
quantitywillrise.

explainandassesstheeffectsofmaximumandminimumprices
· Aminimumpricecancauseexcesssupplyascustomerswillnotwantto
buytheproduct.Businessesthatselltheirproductsgetmorerevenue.
· Amaximumpricecancauseexcessdemandandunofficialmarketsare
likelytodevelopasifpeoplepurchasedthegoodtheycansellit
themselvesforahigherprice.Businessesthatselltheproductsgetless
revenue.

identifybusinessobjectives
· Profitmaximisation
· Tobreakeven
· Toincreasemarketshare
· Tosurvive
· Tomakereturnstoshareholders(dividends)
· Toincreasesales
· Toprovideagoodservice

identifyandcalculatetotalandaverage,fixedandvariablecosts
· Totalcosts=Fixedcosts+Variablecosts
· Averagecosts=Totalcosts/Numberofunitsproduced
· Fixedcostsarethesameeverytimenomatterhowmanyunitsare
produced
· Variablecostsdependonhowmanyunitsareproducedandsold

identifyandcalculatetotalandaveragerevenues
· Totalrevenue=Price*Quantitysold
· Averagerevenue(price)=Totalrevenue/Quantitysold

identifyandcalculateprofit
·…

Page 9

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OCRGCSEEconomicsUnitA591Notes

explainhowproductivitymaybeincreased
· Specialisationoflabour(workersbecomebetteratdoingtheirtask)
· Substitutionofcapital(faster,canrunwithoutbreaks)
· Workerinvolvement(trainingtheworkersgivesthemnewtechniques,
skillsandqualifications)

explainandassesstheimpactofcompetitiveforcesontheneedforincreased
productivity
· Firmsneedtoincreasetheirproductivityinacompetitivemarketinorder
toprovideabetterquality,quantityandpricetoattractmorecustomers.

understandandexplaintheroleandoperationoftheproductmarket
· Intheproductmarket,firmssupplygoodsandservicestosatisfy
consumerdemand.

evaluatethebenefitsandlimitationsoftheproductmarket
Benefitsoftheproductmarket Limitationsoftheproductmarket
· Fairestwayofallocating · Peoplecannotobtaingoodsand
resources servicestheycannotafford
· Createsjobs · Monopoliesmayoccur

understandhowandwhyfirmsgrowinsize
· Firmsgrowinsizesotheycanenjoythebenefitsofgrowth
· Firmscangrowinternally:
· Gettingmoreoutlets/factories
· Hiringmorelabour
· Increasingthelevelofproduction
· Firmscangrowexternally:
· Integration
· Merger
· Takeover…

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OCRGCSEEconomicsUnitA591Notes

discussthecostsandbenefitsofgrowthforabusiness
Costsofgrowth Benefitsofgrowth
· Twosetsofmanagersmaynot · Increasedprofits
agree · Increasedmarketshare
· Businessesmayhavedifferent · Newideasfromtheother
objectivesandtargets businesses
· Costlytomerge/takeover · Nocompetitionwiththeother
· Lesschoiceforconsumers businesses
· Higherprices · Gainfromeconomiesofscale
· Diseconomiesofscale

explainandassessthegainsfromcompetitivemarketsforfirms,consumers,etc.
· Theimplicationsforfirmsarestatedabove
· Consumerscan`shoparound'togetthebestdeal
· Theyhavevarietyandchoicetochoosefrom
· Lowerpricesforconsumers
· Firmswillofferabettercustomerserviceandabetterlocation

understandandexplaintheroleandoperationofthelabourmarket
· Thelabourmarketisthenominalmarketinwhichworkersfindpaying
work,employersfindwillingworkers,andwageratesaredetermined.

identifythedifferencesbetweengrossandnet,andrealandnominalincome
· Grossincomeistheamountapersonreceivesbeforealldeductionsare
takenintoaccount.
·…

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