OCR AS Economics notes - F581/Unit 1 only (Tutor2U)

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Table of Contents
Scarcity and Choice .......................................................................................................................... 2
Economic Resources ........................................................................................................................ 6
Factor Rewards ............................................................................................................................... 10
The Production Possibility Frontier ................................................................................................. 14
Specialisation and Trade ................................................................................................................ 18
Positive and Normative Statements ................................................................................................ 22
Markets: Understanding Demand ................................................................................................... 23
Markets: Understanding Supply ...................................................................................................... 30
Markets: Finding an Equilibrium Price ............................................................................................ 36
Price Elasticity of Demand .............................................................................................................. 42
Price Elasticity of Supply ................................................................................................................. 49
Income Elasticity of Demand .......................................................................................................... 53
Cross Price Elasticity of Demand .................................................................................................... 56
Functions of the Price Mechanism .................................................................................................. 59
Price Volatility in Markets ................................................................................................................ 65
Inter-relationships between Markets ............................................................................................... 73
Consumer Surplus .......................................................................................................................... 76
Producer Surplus ............................................................................................................................ 80
Markets in Action: The Market for Oil .............................................................................................. 83
Markets in Action: The Market for Copper ...................................................................................... 89
Markets in Action: The Market for Coffee ....................................................................................... 92
Markets in Action: The UK Housing Market .................................................................................... 96
Markets in Action: The Labour Market .......................................................................................... 101
Markets in Action: Economics of Health Care ............................................................................... 112
Background to Supply: Production and Costs .............................................................................. 119
Economies and Diseconomies of Scale ........................................................................................ 124
Productivity ................................................................................................................................... 129
Economic Efficiency ...................................................................................................................... 132
Introduction to Causes of Market Failure ...................................................................................... 136
Competition and Monopoly in Markets .......................................................................................... 137
Negative Externalities ................................................................................................................... 144
Positive Externalities ..................................................................................................................... 151
Public Goods and Private Goods .................................................................................................. 153
Merit Goods .................................................................................................................................. 157
Demerit goods............................................................................................................................... 160
Factor Immobility ........................................................................................................................... 164
Imperfect Information .................................................................................................................... 167
Poverty and Inequality in Resource Allocation .............................................................................. 170
Government Intervention in the Market ......................................................................................... 173
Indirect Taxation ........................................................................................................................... 179
Producer Subsidies ....................................................................................................................... 182
Maximum Prices ........................................................................................................................... 185
Minimum Prices ............................................................................................................................ 189
Buffer Stock Schemes .................................................................................................................. 193
Government Failure ...................................................................................................................... 195
Exam Technique ........................................................................................................................... 201

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Scarcity and Choice
Road space throughout the world is
becoming increasingly scarce as the
demand for motor transport increases each
year ­ what do you think are some of the
best solutions to reducing the problem of
congestion on our roads?
The Economist's Dictionary of Economics defines economics as
"The study of the production, distribution and consumption of wealth in human society"
Another definition of the subject comes from the economist Lionel Robbins, who said in 1935 that
"Economics is a social science that studies…read more

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For a perspective on the achievements of countries in meeting people`s basic needs, the Human
Development Index produced by the United Nations is worth reading.
IKEA sells to millions of consumers
throughout the world ­ does it meet our
needs and wants?
Making choices
Because of scarcity, choices have to be made by all consumers, firms and governments. Over six
million people travel into London each day.…read more

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Typically we tend to assume that, when making decisions in the market place, people aim to
maximise their welfare. They have a limited income and they seek to allocate their money in a
way that improves their standard of living.
Of course in reality consumers rarely behave in a perfectly informed and rational way.…read more

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In such a system, market prices play little or no part in
informing resource allocation decisions and queuing rations scarce goods.
4. Mixed economy: In a mixed economy, some resources are owned by the public sector
(government) and some resources are owned by the private sector. The public (or state)
sector typically supplies public, quasi-public and merit goods and intervenes in markets to
correct perceived market failure.…read more

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Economic Resources
Finite resources and sustainability
There are only a finite - or limited - number of workers, machines,
acres of land and reserves of oil and other natural resources on the
earth. Because most resources are finite, we cannot produce an
unlimited number of different goods and services. By supplying more
for an ever-growing population we are in danger of destroying the
natural resources of the planet.…read more

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An increase in the size and the quality of the labour force is vital if a country wants to achieve
sustained growth. In recent years the issue of the migration of labour has become important.
Can migrant workers help to solve labour shortages? What are the long-term effects on the
countries who suffer a drain or loss of workers through migration?
Capital:
Capital goods can be used to produce other consumer goods and services in the future.…read more

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Infrastructure is vital in achieving sustained economic growth
Entrepreneurship
An entrepreneur is an individual who seeks to supply products to a market for a rate of return
(i.e. to make a profit). Entrepreneurs will usually invest their own financial capital in a business
and take on the risks. Their main reward is the profit made from running the business.…read more

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Hydrogen refuel station unveiled (BBC news, July 2008)
Wind power ­ the future? (BBC news, June 2008)
© Tutor2u Limited www.tutor2u.…read more

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Factor Rewards
Factors of production are used to create output to be sold in markets. Each factor used in
production can expect some reward:
Income
The main sources of income for people are:
1. Wages and salaries from work often boosted by overtime and productivity bonuses.
2. Interest from savings
3. Dividends from share ownership.
4. Rent income from the ownership of property.…read more

Comments

? Secret - Team GR

Love it.. very helpful indeed ! Thank you :)

Sam

Thanks greatly appreciated....

Merz

Thank you!/

Have you got Unit 2 please?

bboodoo123

link does not work... :(

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