Economics Unit 1 (Edexcel)

1. Scarcity

   Annotations:

   • Scarcity arises because there are insufficient resources to provide for everyone's wants.
2. Opportunity Cost

   Annotations:

   • Refers to the value of the next best alternative which is forgone.
3. Resources
   1. Renewable Resources

      Annotations:

      • One whose stock level can be maintained over a period of time.
   2. Non-renewable Resources

      Annotations:

      • One whose stock level is decreased over time as it is consumed.
4. PPF

   Annotations:

   • Shows the maximum potential level of output for two good or services when all resources are fully employed given the level of technology available.
   1. Incr. shown by shift outwards
   2. Decr. shown by shift inwards
   3. Factors
      1. Quality of Goods Incr./Decr.
      2. Quantity of Goods Incr./Decr.
5. Specialisation

   Annotations:

   • Occurs when an individual, a firm, a region or a country concentrates on the production of a limited range of goods and services.
   1. Division of Labour
      1. Advantages

         Annotations:

         • -Less time required to work for specific tasks -No time wasted moving from 1 job to another
      2. Disadvantages

         Annotations:

         • -Easier to replace skilled workers -Interdependence in production
6. Economy Types
   1. Centrally Planned Economy
   2. Mixed Economy
   3. Free Market Economy
   4. Positive economics

      Annotations:

      • A statement that can be supported by evidence.
   5. Normative Economics

      Annotations:

      • A statement that can not be supported as it's a value judgement.

Annotations:

• The quantity of a good or service purchased at a given price over a given time period.

1. Substitution Effect

   Annotations:

   • When the price of a good falls, it becomes cheaper relative to it's substitutes.
2. Income Effect

   Annotations:

   • When the price of a good falls, the real income of a consumer may increase, so more of the good can be bought.
3. Increase shifts D. curve to right
4. Decrease shifts D. curve to left
5. Factors
   1. Fall in price of complementary goods
   2. Rise in the price of substitute goods
   3. Advertising
6. PED

   Annotations:

   • Price Elasticity of Demand. The responsiveness in the demand for a good due to a change in its price.
   1. % change in quantity demanded of A / % change in price of A
   2. PED > 1 ~ Price Elastic ~ %^D > %^P
   3. PED = 1 ~ Unit Elasticity ~ %^D = %^P
   4. PED < 1 ~ Price Inelastic ~ %^D < %^P
   5. PED = 0 ~ Perfectly Inelastic
   6. PED = ∞ ~ Perfectly Elastic
   7. What determines PED?
      1. Substitute Availability
      2. Luxury vs Necessity
      3. Proportion of Income spent on good
      4. Addictive Goods
7. YED

   Annotations:

   • Income Elasticity of Demand The amount of goods and services which can be purchased with one's nominal income.
   1. Normal Goods have positive YED

      Annotations:

      • A rise in income causes a rise in quantity demanded
   2. Inferior Goods have negative YED

      Annotations:

      • People tend to demand higher quality as their income increases.
8. XED
   1. %change in demand for good B / % change price good A
   2. Substitute goods are in competitive demand - XED = +
   3. Complementary goods are in joint demand = XED = -
   4. XED = 0 ~ No relationships

1. Movement of Curve
   1. Upwards Shift