A LEVEL ECONOMICS SECTION 1 REVISION NOTES fetsystem

1. A LEVEL ECONOMICS SECTION 1 REVISION NOTES www.fetsystem.com

2. Scarcity • A situation when a choice is to be made • Everyone in this world has to face this situation of scarcity • It gives rise to the basic economic problem • Scarce/limited resources and unlimited wants

3. Choices at all levels • Individuals • Firms • Governments

4. Individuals • The individuals are forced to make a choice • Example • An individual may have to chose whether to buy a shirt or a pant

5. Firms • Firms are also forced to make choices • Example • A firm may have to chose whether to spend the money or marketing department or research and development department

6. Governments • Governments which are considered all powerful too have to make choices • Eg. • Government has to make a choice whether to spend the public money on defense or healthcare

7. Opportunity cost • The next best alternative foregone when a choice is made • Opportunity cost is never in money value • The benefits which could have been received by taking an alternative action.

8. 3 Basic Questions • What to produce • How to produce • For whom to produce

9. Different Allocative Mechanisms • Market economies • Planned economies • Mixed economies

10. Market economies • Market economy is an economy where resources are allocated by the price mechanism, the consumers determine what is produced. • Very less role of the government • Eg. United states

11. Planned economies • Planned system is an economic system where resources are allocated by the, the state determines what is going to be produced. • No consideration given to market forces or the businesses • Eg. USSR

12. Mixed economies • A form of economy which combines the good features or advantages of market and planned economy • Business activity controlled by market forces • The government provides the essentials: education, health and security • Eg.

13. Production Possibility Curve(PPC) • It is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources

14. The margin: decision making at the margin

15. Positive statements • Actual facts and figures which are both measurable and comparable

16. Normative statements • Opinions or suggestions • Often called judgements

17. Ceteris paribus

18. Factors of production • Land • Labour • Capital • Enterprise

19. Land • Natural occurring resources used for production purpose • Eg. • Earth on which mills are built • Water in which fish is found • raw materials used to produce goods

20. Labour • Manual and mental effort to produce or deliver goods and services • People who are willing or able to work are known as labour work force. • Eg. Clerks • Computer technician • O level economics teacher

21. Capital • Manmade goods to produce other goods and services • Capital is classified into capital goods and consumer goods • Eg. • Machines • Factories • Roads

22. Enterprise • The people who bring the other 3 factors of production together to produce goods and services. • In this process they do the decision making and risktaking • Eg • Businessmen

23. Division of labour

24. Money

25. Characteristics of Money

26. Functions of Money

27. Efficient resource allocation

28. Economic efficiency

29. Productive efficiency

30. Allocative efficiency