4. AQA A LEVEL
ECONOMICS
, Contents
4.1.1-8 Microeconomics 4.2.1-6 Microeconomics
Unit Page Unit
4.1.1 Individuals, firms, markets & market failure 3-4 4.2.1 the national & international economy
4.1.2 Individual economic decision making 5-6 4.2.2 AD AS analysis
4.1.3 Price determination in a competitive 4.2.3 economic performance
7-11
market
4.1.4 Production, costs and revenue 12-14 4.2.4 financial markets & monetary policy
4.1.5 Perfect competition, imperfectly 4.2.5 fiscal policy & supply-side policies
15-21
competitive markets & monopoly
4.2.6 globalisation
4.1.6 The labour market 22-27
4.1.7 the distribution of income & wealth:
28-29
poverty & inequality
4.18 the market mechanism, market failure &
30-34
government intervention in markets
, 4.1. INDIVIDUALS, FIRMS, MARKETS & MARKET FAILURE
4.1.1. ECONOMIC METHODOLOGY & THE ECONOMIC PROBLEM 4.1.1.3. ECONOMIC RESOURCES
4.1.1.1 ECONOMIC METHODOLOGY FACTORS OF These are the key economic resources of Land, labour, capital, ent
PRODUCTION
WHY IS ECONOMICS A SOCIAL It uses scientific methods to build theories that can help explain the
SCIENCE? behaviour of individuals, groups and organisations. Economics attempts
to explain economic behaviour, which arises when scarce resources are LAND Land includes all natural physical resources. Some nations are rich
exchanged. natural resources and then specialise in the their extraction and pr
countries such as Japan are heavily reliant on importing these reso
WHAT ABOUT EMPIRICAL Economic theory is to be judged by its predictive power supported
EVIDENCE? by empirical regularity. Only factual or empirical evidence can make a LABOUR Labour is the human input into production e.g. the supply of work
theory go from a “meaningless” hypotheses to part of man's productivity. An increase in the size and the quality of the labour
accumulated knowledge. wants to achieve growth. In recent years the issue of the migratio
important. Can migrant workers help to solve labour shortages? W
SIMILARITIES TO NATURAL Economics shares the combination of qualitative and quantitative effects on the countries who suffer a drain or loss of workers throu
SCIENCES elements common to all social sciences.
CAPITAL CAPITAL GOODS are used to produce other consumer goods and s
DIFFERENCES TO NATURAL Some critics of the field argue that economics falls short of the definition Fixed capital includes machinery, equipment, new technology, fac
SCIENCES of a science for a number of reasons, including a lack of testable buildings
hypotheses, lack of consensus, and inherent political overtones. Despite New items of capital machinery or technology are used to boost th
these arguments, labour.
POSITIVE ECONOMIC Objective and fact-based where the statements are precise, descriptive, ENTERPRISE Regarded by some as a specialised form of labour input
STATEMENTS and clearly measurable. E.g. GDP rose by 2.5% in 2021. An entrepreneur is an individual who supplies products to a marke
Entrepreneurs will usually invest their own financial capital in a bu
NORMATIVE ECONOMIC These are opinions or value judgements which are not based on real
risks. Their main reward is the profit made from running the busin
STATEMENTS economic data.
USE OF VALUE JUDGEMENTS Economists often demonstrate a lack of consensus and inherent political 4.1.1.4 SCARCITY, CHOICE & THE ALLOCATION OF RESOURCE
IN ECONOMICS overtones. FUNDAMENTAL ECONOMIC Limited resources and unlimited wants.
THE INFLUENCE ON PEOPLE’S The first rule of economics is scarcity. The first rule of politics is to ignore PROBLEM
MORAL & POLITICAL the first rule of economics. As such politics has a profound impact upon SCARCITY & CHOICE Choices must be made about how scarce resources ar
JUDGEMENTS economic policy. different uses.
4.1.1.2 THE NATURE & PURPOSE OF ECONOMIC ACTIVITY CHOICES & OPPORTUNITY COST Choices have an opportunity cost.
THE CENTRAL PURPOSE The production of goods & services to satisfy needs and wants OPPORTUNITY COST The next best alternative foregone.
KEY ECONOMIC DECISIONS • What to produce?
Activities
• How to produce?
1. Research to find an example of a competitive market which benefits the consumer.
• Who is to benefit?
2. Are there any markets where consumers suffer from competition?
3. Which markets in the UK are not competitive? Why might this be the case?
Ext. Do you think markets should be more open or command style?
, 4.1.1.5. PRODUCTION POSSIBILITY DIAGRAMS SPECIALISATION & DIVISION OF LABOUR
PRODUCTION POSSIBILITY Illustrates the possible combinations of two goods that can be produced ADVANTAGES Will lead to an increase in labour productivity and firms will be ab
DIAGRAMS with existing resources, such that more of one good could be produced only ECONOMIES OF SCALE (lower average costs with increased outpu
by diverting resources from the other good, resulting in less production of it. efficiency.
DISADVANTAGE However, workers do specific tasks which may become boring an
fall as a result. High levels of specialisation could lead to possible
Why does it slope downwards? Because resources are LIMITED. SCALE.
Why does it bow outwards? This is due to the fact that some resources will be better suited to the
production of good X & some good Y. eg. Guns & butter. DECREASING
RETURNS TO SCALE.
Why is it a straight line? Because resources are equally well-suited to the production of both goods X
& Y. CONSTANT RETURNS TO SCALE
Why does it bow inwards? Because resources are focused upon SPECIALISATION which generates
ECONOMIES OF SCALE. Or INCREASING RETURNS TO SCALE.
How does it illustrate Any point achieved on the PPC is PRODUCTIVELY EFFICIENT. Yet not all
efficiency? points are allocatively efficient as this is determined by supply & demand.
Activities
1. Draw a
Ext. Do you think markets should be more open or command style?
ECONOMICS
, Contents
4.1.1-8 Microeconomics 4.2.1-6 Microeconomics
Unit Page Unit
4.1.1 Individuals, firms, markets & market failure 3-4 4.2.1 the national & international economy
4.1.2 Individual economic decision making 5-6 4.2.2 AD AS analysis
4.1.3 Price determination in a competitive 4.2.3 economic performance
7-11
market
4.1.4 Production, costs and revenue 12-14 4.2.4 financial markets & monetary policy
4.1.5 Perfect competition, imperfectly 4.2.5 fiscal policy & supply-side policies
15-21
competitive markets & monopoly
4.2.6 globalisation
4.1.6 The labour market 22-27
4.1.7 the distribution of income & wealth:
28-29
poverty & inequality
4.18 the market mechanism, market failure &
30-34
government intervention in markets
, 4.1. INDIVIDUALS, FIRMS, MARKETS & MARKET FAILURE
4.1.1. ECONOMIC METHODOLOGY & THE ECONOMIC PROBLEM 4.1.1.3. ECONOMIC RESOURCES
4.1.1.1 ECONOMIC METHODOLOGY FACTORS OF These are the key economic resources of Land, labour, capital, ent
PRODUCTION
WHY IS ECONOMICS A SOCIAL It uses scientific methods to build theories that can help explain the
SCIENCE? behaviour of individuals, groups and organisations. Economics attempts
to explain economic behaviour, which arises when scarce resources are LAND Land includes all natural physical resources. Some nations are rich
exchanged. natural resources and then specialise in the their extraction and pr
countries such as Japan are heavily reliant on importing these reso
WHAT ABOUT EMPIRICAL Economic theory is to be judged by its predictive power supported
EVIDENCE? by empirical regularity. Only factual or empirical evidence can make a LABOUR Labour is the human input into production e.g. the supply of work
theory go from a “meaningless” hypotheses to part of man's productivity. An increase in the size and the quality of the labour
accumulated knowledge. wants to achieve growth. In recent years the issue of the migratio
important. Can migrant workers help to solve labour shortages? W
SIMILARITIES TO NATURAL Economics shares the combination of qualitative and quantitative effects on the countries who suffer a drain or loss of workers throu
SCIENCES elements common to all social sciences.
CAPITAL CAPITAL GOODS are used to produce other consumer goods and s
DIFFERENCES TO NATURAL Some critics of the field argue that economics falls short of the definition Fixed capital includes machinery, equipment, new technology, fac
SCIENCES of a science for a number of reasons, including a lack of testable buildings
hypotheses, lack of consensus, and inherent political overtones. Despite New items of capital machinery or technology are used to boost th
these arguments, labour.
POSITIVE ECONOMIC Objective and fact-based where the statements are precise, descriptive, ENTERPRISE Regarded by some as a specialised form of labour input
STATEMENTS and clearly measurable. E.g. GDP rose by 2.5% in 2021. An entrepreneur is an individual who supplies products to a marke
Entrepreneurs will usually invest their own financial capital in a bu
NORMATIVE ECONOMIC These are opinions or value judgements which are not based on real
risks. Their main reward is the profit made from running the busin
STATEMENTS economic data.
USE OF VALUE JUDGEMENTS Economists often demonstrate a lack of consensus and inherent political 4.1.1.4 SCARCITY, CHOICE & THE ALLOCATION OF RESOURCE
IN ECONOMICS overtones. FUNDAMENTAL ECONOMIC Limited resources and unlimited wants.
THE INFLUENCE ON PEOPLE’S The first rule of economics is scarcity. The first rule of politics is to ignore PROBLEM
MORAL & POLITICAL the first rule of economics. As such politics has a profound impact upon SCARCITY & CHOICE Choices must be made about how scarce resources ar
JUDGEMENTS economic policy. different uses.
4.1.1.2 THE NATURE & PURPOSE OF ECONOMIC ACTIVITY CHOICES & OPPORTUNITY COST Choices have an opportunity cost.
THE CENTRAL PURPOSE The production of goods & services to satisfy needs and wants OPPORTUNITY COST The next best alternative foregone.
KEY ECONOMIC DECISIONS • What to produce?
Activities
• How to produce?
1. Research to find an example of a competitive market which benefits the consumer.
• Who is to benefit?
2. Are there any markets where consumers suffer from competition?
3. Which markets in the UK are not competitive? Why might this be the case?
Ext. Do you think markets should be more open or command style?
, 4.1.1.5. PRODUCTION POSSIBILITY DIAGRAMS SPECIALISATION & DIVISION OF LABOUR
PRODUCTION POSSIBILITY Illustrates the possible combinations of two goods that can be produced ADVANTAGES Will lead to an increase in labour productivity and firms will be ab
DIAGRAMS with existing resources, such that more of one good could be produced only ECONOMIES OF SCALE (lower average costs with increased outpu
by diverting resources from the other good, resulting in less production of it. efficiency.
DISADVANTAGE However, workers do specific tasks which may become boring an
fall as a result. High levels of specialisation could lead to possible
Why does it slope downwards? Because resources are LIMITED. SCALE.
Why does it bow outwards? This is due to the fact that some resources will be better suited to the
production of good X & some good Y. eg. Guns & butter. DECREASING
RETURNS TO SCALE.
Why is it a straight line? Because resources are equally well-suited to the production of both goods X
& Y. CONSTANT RETURNS TO SCALE
Why does it bow inwards? Because resources are focused upon SPECIALISATION which generates
ECONOMIES OF SCALE. Or INCREASING RETURNS TO SCALE.
How does it illustrate Any point achieved on the PPC is PRODUCTIVELY EFFICIENT. Yet not all
efficiency? points are allocatively efficient as this is determined by supply & demand.
Activities
1. Draw a
Ext. Do you think markets should be more open or command style?
