AS Level Economics

There are 2 kinds of economic statement, positive and normative:

Positive

Objective statements that can be tested (facts)

Normative

Subjective statements which contain an opinion

The economic problem:

How best to satisfy infinite wants and needs with the scarce amount of resources

There are 4 factors of production:

Land

Natural resources:

• Non-renewable e.g. gas, oil and coal
• Renewable e.g. wind or tidal power
• Materials extracted by mining
• Water
• Animals found in an area

Labour

The work done by the people who contribute to the production process

Capital

Equipment used in producing goods and services

Enterprise

Willingness to take risk to make a profit

Economic agents react to incentives

Producers

Firms of people that make goods or provide services

They decide what to make, and how much to sell it for

Consumers

People or firms who buy the goods and services

They decide what to buy, and how much to purchase it for

Governments

A government sets the rules that other participants in the economy have to follow, but also produces and consumes goods and services

They decide how much to intervene in the way producers/consumers act

In a market economy, all economic agents are assumed to be rational. This means they’ll make decisions based on what’s best for themselves. These decisions will be based on economics incentives, such as making profit or paying as little as possible for a product. 

Production Possibility Frontiers

• A PPF is a curve showing all maximum output possibilities for two goods, given a set of inputs consisting of resources and other factors
• The PPF assumes that all inputs are used efficiently

The basic problem in economics is how best to allocate scarce resources. A PPF shows the options that are available when you consider the production of just two types of goods and services

Trade-off

When you have to choose between conflicting objectives because you can’t achieve all your objectives at the same time

Opportunity Cost

The next best alternative you give up in making that decision

Economic Growth

Economic growth is a long-term expansion of the productive potential of the economy 

• A PPF shows what’s possible using a particular level of resources
• If this level of resources is fixed, then movements along the PPF shows a reallocation of those resources
• When fewer total resources are available (e.g. after a natural disaster), the PPF shifts inwards, showing the total possible output has shrunk. This shows negative economic growth. 

When fewer total resources are available (e.g. after a natural disaster), the PPF shifts inwards, showing the total possible output has shrunk. This shows negative economic growth. 

Economics growth is shown by an outwards shift in the PPF curve

Economics growth is shown by an outwards shift in the PPF curve

• Improved technology
• Improvements of labour
• Discovering raw materials
• Increase in working population
• Increased capital

Markets and Economies

There are 3 types of economies: free market, command and mixed.

Free Market

Where markets allocate resources through the price mechanism.

Command

The government controls all major aspects of…