Unit 1 Edexcel Economics

Couple of the diagrams are missing but apart from that these are complete unit 1 notes! 

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Economics 1st term
Market failure is where a market fails to allocate resources efficiently
Things that are over produced:
Fast food (evidence: obesity)
Illegal drugs
Government failure is when the government fails to allocate resources efficiently leading to welfare
Welfare loss means society has a fall in quality of life
Why do governments provide certain things? :
Bot logistical to collect money for them
Not everyone could afford them
Economies of scale; more cost effective to produce in large quantities
Some will not contribute to voluntary services they need
If the government runs it they can regulate it
The government intervenes and helps by:
Taking over the company
Adjusting tax
Regulation on age (e.g. drinking alcohol, smoking etc.)
A cartel is where to competing businesses make a formal agreement to raise their prices
Merit goods are goods and services that the government feels that people will under consume and
which ought to be subsidised or provided free at the point of use so that consumption does not
depend primarily on the ability to pay for the good or service.
Social care
Rubbish collection
The government provide these free as otherwise some people would not be able to afford them.
*paternalism is the public's best interest

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Economics 1st term
Merit goods have qualities of:
1. Being under provided by the price mechanism, the government gives merit goods because
of paternalism and because of public interest, it also benefits the government.
2. Positive externalities- a positive effect on a third party from a transaction (e.g. an educated
3. There is usually no market price but payment could be made, (e.g.…read more

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Economics 1st term
Monopoly strengths: Weaknesses:
Uniformity of price to all consumers, consumers Force down supplier prices
are charged the same price
Unlikely to go bankrupt Fore up consumer prices
Will be producing their good/service meaning its Make large profits due to the above points
always provided
Economies of scale; if things are produced more Strong market share scares off future
cheaply theoretically they can be sold more competition and reduces current ones
More money to spend on R & D Few/ no competitors…read more

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Economics 1st term
Economics means; the social science that deals with the production, distribution and consumption of
goods and services and with the theory and management of economies or economic systems.
The three questions:
1. What to produce
2. How to produce
3. Who to produce
The basic economic problem is that the UK has an unlimited amount of needs and wants and there
are not enough economical resources to satisfy all of these.…read more

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Economics 1st term
This considers how the rainforest issues are resolved with firms producing Q1 amount of timber at
price P1.…read more

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Economics 1st term
Tradable pollution permits (i.e. you pay for the right to pollute, it can be traded or sold)
Information failure:
Many goods frequently purchased e.g. cans of soft drink; buyers are familiar with and can make
informed decisions.
However for many goods, that is not the case, e.g. buying a house next to neighbours who like to
E.g. washing machines purchased every 10 years ­ buyers have imperfect information
"Which" magazine created its own nice through the existence of these information asymmetries.…read more

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Economics 1st term
Reasons why buffer stock schemes may be ineffective:
Floor/ceiling price badly chosen
Cost of scheme, e.g. storage
Inadequate stocks when needed
Perishability of crops
Incentive to over produce
Reasons why a buffer stock scheme may be beneficial:
To reduce price/instability of income
Enables planning for future
Protects employment of plantations
Reduces monopoly power of buyers of cocoa
Intervention may be inefficient, may raise prices higher than the free market, may prevent exit of
inefficient process.…read more

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Economics 1st term
Key words:
Ceteris paribus means all other things remain the same
The basic economic problem is that of scarcity
When a consumer makes a choice, he will choose the goods which give him the maximum utility or
The cost of this choice is known as the opportunity cost. This is the cost of the next best alternative
for gone.…read more

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Economics 1st term
Factors that affect demand:
Quantity demanded is only affected by price
A change in demand is effected by any other factor except price.
Consumer surplus- the difference between how much buyers are prepared to pay for a good and
that they actually pay.…read more

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Economics 1st term
Producer surplus:
Producer surplus at price P is... PCB
Producer surplus at price P1 is .... P1CA
The change in producer surplus is (+ or -) .... P1 a p b
Specific tax: Is a unit tax i.e. a specific amount of one unit, 10 p a beer
An Ad valorem tax is a percentage of something i.e. 20% of wages
Taxation and subsidies are focused on the supplier. We will get a shift in the supply curve by the tax.…read more


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