1.1.1 Economics as a social science
Economics is a social science, and it focuses on investigating human
behaviour.
Ceteris paribus = All other factors being equal
Economics must make assumptions (e.g. As prices fall, demand increases)
.This helps to build a theory which can be tested.
1.1.2 Positive and Normative statements
It’s important to distinguish between facts and judgements when making
assumptions and theories.
Positive statements are objective. They can be tested with factual
evidence and consequently be rejected or accepted.
Normative statements are subjective. They are based on value
judgements.
1.1.3 The Economic Problem
The main problem in economics is scarcity. People have unlimited wants
and limited resources.
Scarcity – In this village/World resources are limited(finite). Land, water,
Bread, Milk, and other resources are limited – in this world. Economists
therefore say that the resource is scarce.
OPPORTUNITY COST – The loss of the benefit of the next best alternative
when a choice is made.
For example, if I had chosen the flake instead of the twirl, I would have
given up the benefit of having the twirl for the flake instead.
3 mark question – How to answer:
- Knowledge (1) - Definition
- Application (1) – Real- life example
- Analysis (1)
Explain an opportunity cost of the government of grating subsidies to
energy suppliers to install loft insulation?
The opportunity costs is the loss of the benefit of the next best alternative
when a choice is made. Therefore, the opportunity cost of the government
granting subsidies to energy suppliers is not being able to use that money
to help education. There may be better ways to make UK homes energy
efficient without using existing government funding.
,Renewable Resources – Replaced naturally and can be used again e.g.
Oxygen, water, timber, solar energy from the sun.
Non-Renewable Resources – In fixed amounts and are being used faster
than they can be replaced e.g. Natural gas, oil, and Coal.
Houses: Too little housing in the UK. Economic conditions, location,
property characteristics, supply and demand all influence house prices. If
the price of houses increases, then demand will decrease. Housing forms
government spending and revenue.
1.1.4 Production Possibility Frontier
Productivity measures output per unit input.
Production Possibility Frontiers (PPFs) show the maximum productive
potential of an economy. PPFs can be used to show the opportunity cost of
scarce resources.
-At point A we are using all our resources
efficient
-At point C we are not using all our resource
efficiently
-At point E, it is not attainable with the
current level of resources.
-If we can find more resources, we can shift
the PPF to PPF2
An increase in productive potential
An increase in the quantity or quality of resources shifts the curve
outward.
A decrease in productive potential
A decrease in the quantity or quality of resources shifts the curve inwards.
PPF & Opportunity Cost
Consumer Goods – are goods which cannot be used to produce other
goods (what consumers buy)
Capital Goods – Goods which can be used to produce other goods (what
businesses will buy
1.1.5 Specialisation and Division of labour
Specialisation refers to producing what a worker/Firm/Country is most
efficient at.
Advantages:
- Large range of goods (reducing problem of scarcity)
, - Higher quality Goods
- Economies of scale, lowering costs of production
Disadvantages:
-Over reliance on one commodity can be risky
- Changing tastes and fashion
Key Points of Specialisation
Efficient which leads to economies of scale.
Lower costs = lower prices
More trade = economic growth
Division of labour – Refers to production process being broken down into
separate specialized tasks. It is usually low paid and demoralising working
conditioning. It focuses on organising employees so that they focus on one
part of the production process.
The Functions of money:
- Medium of exchange: It can be used to buy and sell goods and
services and is acceptable everywhere. Since money can be used to
buy all goods and services, everyone will accept money as they
know they can use it to buy what they want.
- Measure of value: It can compare the value of two goods, such as
a table and a skirt. It is also able to put a value on labour.
- Store of value: It can keep its value and can be kept for a long
time.
- Method for deferred payment: Money can allow for debts to be
created. People can therefore pay for things without having money
in the present and can pay for it later. This relies on money storing
its value.
1.1.6 Free market, Mixed and Command economies
Command economy – Government regulates the economy completely.
They will tell businesses what to produce, how much to produce and who
to sell to.
Free market Economies – the market self regulates through the invisible
hand.
Mixed Economies – There are some free market elements however the
government regulates certain elements.
Economic ADVANTAGES DISADVANTAGES
System
Free Market -Variety of goods and services - Under production of
Economy - High quality goods and merit goods (Such as
services healthcare and
- Quick response to consumer education)
demand trends
Economics is a social science, and it focuses on investigating human
behaviour.
Ceteris paribus = All other factors being equal
Economics must make assumptions (e.g. As prices fall, demand increases)
.This helps to build a theory which can be tested.
1.1.2 Positive and Normative statements
It’s important to distinguish between facts and judgements when making
assumptions and theories.
Positive statements are objective. They can be tested with factual
evidence and consequently be rejected or accepted.
Normative statements are subjective. They are based on value
judgements.
1.1.3 The Economic Problem
The main problem in economics is scarcity. People have unlimited wants
and limited resources.
Scarcity – In this village/World resources are limited(finite). Land, water,
Bread, Milk, and other resources are limited – in this world. Economists
therefore say that the resource is scarce.
OPPORTUNITY COST – The loss of the benefit of the next best alternative
when a choice is made.
For example, if I had chosen the flake instead of the twirl, I would have
given up the benefit of having the twirl for the flake instead.
3 mark question – How to answer:
- Knowledge (1) - Definition
- Application (1) – Real- life example
- Analysis (1)
Explain an opportunity cost of the government of grating subsidies to
energy suppliers to install loft insulation?
The opportunity costs is the loss of the benefit of the next best alternative
when a choice is made. Therefore, the opportunity cost of the government
granting subsidies to energy suppliers is not being able to use that money
to help education. There may be better ways to make UK homes energy
efficient without using existing government funding.
,Renewable Resources – Replaced naturally and can be used again e.g.
Oxygen, water, timber, solar energy from the sun.
Non-Renewable Resources – In fixed amounts and are being used faster
than they can be replaced e.g. Natural gas, oil, and Coal.
Houses: Too little housing in the UK. Economic conditions, location,
property characteristics, supply and demand all influence house prices. If
the price of houses increases, then demand will decrease. Housing forms
government spending and revenue.
1.1.4 Production Possibility Frontier
Productivity measures output per unit input.
Production Possibility Frontiers (PPFs) show the maximum productive
potential of an economy. PPFs can be used to show the opportunity cost of
scarce resources.
-At point A we are using all our resources
efficient
-At point C we are not using all our resource
efficiently
-At point E, it is not attainable with the
current level of resources.
-If we can find more resources, we can shift
the PPF to PPF2
An increase in productive potential
An increase in the quantity or quality of resources shifts the curve
outward.
A decrease in productive potential
A decrease in the quantity or quality of resources shifts the curve inwards.
PPF & Opportunity Cost
Consumer Goods – are goods which cannot be used to produce other
goods (what consumers buy)
Capital Goods – Goods which can be used to produce other goods (what
businesses will buy
1.1.5 Specialisation and Division of labour
Specialisation refers to producing what a worker/Firm/Country is most
efficient at.
Advantages:
- Large range of goods (reducing problem of scarcity)
, - Higher quality Goods
- Economies of scale, lowering costs of production
Disadvantages:
-Over reliance on one commodity can be risky
- Changing tastes and fashion
Key Points of Specialisation
Efficient which leads to economies of scale.
Lower costs = lower prices
More trade = economic growth
Division of labour – Refers to production process being broken down into
separate specialized tasks. It is usually low paid and demoralising working
conditioning. It focuses on organising employees so that they focus on one
part of the production process.
The Functions of money:
- Medium of exchange: It can be used to buy and sell goods and
services and is acceptable everywhere. Since money can be used to
buy all goods and services, everyone will accept money as they
know they can use it to buy what they want.
- Measure of value: It can compare the value of two goods, such as
a table and a skirt. It is also able to put a value on labour.
- Store of value: It can keep its value and can be kept for a long
time.
- Method for deferred payment: Money can allow for debts to be
created. People can therefore pay for things without having money
in the present and can pay for it later. This relies on money storing
its value.
1.1.6 Free market, Mixed and Command economies
Command economy – Government regulates the economy completely.
They will tell businesses what to produce, how much to produce and who
to sell to.
Free market Economies – the market self regulates through the invisible
hand.
Mixed Economies – There are some free market elements however the
government regulates certain elements.
Economic ADVANTAGES DISADVANTAGES
System
Free Market -Variety of goods and services - Under production of
Economy - High quality goods and merit goods (Such as
services healthcare and
- Quick response to consumer education)
demand trends
