Economics Unit 1

Economics Unit 1

BASIC ECONOMIC PROBLEM
1. Infinite wants and limited resources
  1. Needs
    1. Something essential to survival
  2. Wants
    1. Something you would like to have but is not essential to survival
FACTORS OF PRODUCTION
1. Land
  1. The natural resources used to produce goods and services
    1. The land Itself
    2. Seas and rivers
    3. Buildings
2. Labour
  1. The people to be workers
    1. Unemployment
    2. Education
3. Capital
  1. Money
    1. Recession
    2. Factories and machinery
4. Enterprise
  1. Individuals willing to have ideas and take a risk
    1. Run a business
    2. Education
OPPORTUNITY COST
1. The next best alternative foregone when making a choice - what we give up
  1. Leisure vs work
  2. Sweets vs clothes
  3. One GCSE option over another
SECTORS
1. Primary
  1. Where the extraction of raw materials takes place
    1. Mining
    2. Farming
    3. Oil extraction
    4. Forestry
    5. Quarrying
2. Secondary
  1. Where raw materials are manufactured into goods
    1. Car manufacturing
    2. Refining oil to petrol
    3. Manufacture of electronic goods
3. Tertiary
  1. The service sector
    1. Banking
    2. Tourism
    3. Entertainment
4. Public
  1. Not profit making
  2. Provide a service
  3. Positive externalities
    1. All benefit
5. Private
  1. Aim to make a profit
  2. Increase sales
  3. Expand
  4. Survival
SPECIALISATION
1. The production of a limited range of goods by individuals, firms, regions or countries
  1. Costs
    1. To the firm
      1. Cost of training workers
      2. Expensive workers
      3. Quality suffers
    2. To the workers
      1. Boredom
      2. Skills may suffer
      3. Replaced by machinery
  2. Benefits
    1. To the firm
      1. More productive workers
      2. Lower average costs
      3. Production levels increase
    2. To the worker
      1. Higher pay
      2. Skills are improved
      3. More motivation, job satisfaction
MONEY
1. Medium of exchange
2. Store of value
3. Unit of account
4. Standard for deferred payment
DEMAND AND SUPPLY
1. Demand
  1. Movement along the curve
    1. Expansion
      1. Expansion moves to the right on the curve
      2. Price of goods falls, greater quantity demanded
    2. Contraction
      1. Contraction moves to the left
      2. Price rises, lower quantity demanded
  2. Shifts
    1. What causes them?
      1. Population
      2. Advertising
      3. Substitute
      4. Incomes
      5. Fashion
      6. Interest rates
      7. Complementary goods
    2. To the right
      1. Increase in overall level of demand
    3. To the left
      1. Decrease in overall level of demand
2. Supply
  1. Shifts
    1. What causes them
      1. Productivity
      2. Indirect taxes
      3. No. of firms in market
      4. Technology
      5. Subsidies
      6. Weather
      7. Costs of production
    2. Down/towards
      1. Increase in supply (right)
    3. Up/away
      1. Decrease in supply (left)
ELASTICITY
1. Inelastic
  1. Less than 1
  2. Perfect= vertical
2. Elastic
  1. More than 1
  2. Perfect= horizontal
P.E.D
1. Price elasticity of demand
2. 1. % change in quantity demanded
  1. (change in quantity / original quantity) x 100
3. 2. % change in price
  1. (change in price / original price) x 100
4. 3. Final stage
  1. % change quantity / % change price
COSTS
1. Fixed
  1. Do not vary with output
  2. Pay the same no matter how much you produce
  3. E.g
    1. Rent
    2. Interest on loans
    3. Marketing
2. Variable
  1. Vary with output
  2. The more you produce the higher your variable costs
  3. E.g
    1. Petrol
    2. Raw materials
    3. Packaging
MONOPOLIES
1. Monopoly
  1. 100% market share
2. Monopoly power
  1. 25% market share
3. Benefits
  1. Consumer protection
  2. Efficient
  3. Lower unit cost
    1. Lower prices
  4. New products
  5. Patent
4. Costs
  1. Less choice
  2. Charge higher prices
  3. Undercut local competition
  4. no incentive
    1. Increase efficiency or quality
ECONOMIES OF SCALE
1. Purchasing
  1. Price reductions as bulk buys
2. Risk - bearing
  1. Spread over more outlets, factories and products
3. Finance
  1. Bank lend at lower rate
    1. Company more likely to pay back
4. Technical
  1. Machinery
    1. Increase productivity
5. Managerial
  1. Specialist managers
    1. More efficient
6. Lower average cost per unit
  1. Firm can lower price
    1. Firm becomes more competitive
7. DISECOMOMIES OF SCALE
  1. Loss of control
  2. Lack of Co-ordination
  3. Lack of co-operation
  4. Increase average unit cost
    1. profits reduce
      1. Prices increase
        Less competitive

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