Economics Unit 1 (Edexcel)

Economics Unit 1 (Edexcel)

1. Nature of Economics

   • Scarcity
     • Scarcity arises because there are insufficient resources to provide for everyone's wants.
   • Opportunity Cost
     • Refers to the value of the next best alternative which is forgone.
   • Resources
     • Renewable Resources
       • One whose stock level can be maintained over a period of time.
     • Non-renewable Resources
       • One whose stock level is decreased over time as it is consumed.
   • PPF
     • Shows the maximum potential level of output for two good or services when all resources are fully employed given the level of technology available.
     • Incr. shown by shift outwards
     • Decr. shown by shift inwards
     • Factors
       • Quality of Goods Incr./Decr.
       • Quantity of Goods Incr./Decr.
   • Specialisation
     • Occurs when an individual, a firm, a region or a country concentrates on the production of a limited range of goods and services.
     • Division of Labour
       • Advantages
         • -Less time required to work for specific tasks -No time wasted moving from 1 job to another
       • Disadvantages
         • -Easier to replace skilled workers -Interdependence in production
   • Economy Types
     • Centrally Planned Economy
     • Mixed Economy
     • Free Market Economy
     • Positive economics
       • A statement that can be supported by evidence.
     • Normative Economics
       • A statement that can not be supported as it's a value judgement.

2. DEMAND

   • The quantity of a good or service purchased at a given price over a given time period.
   • Substitution Effect
     • When the price of a good falls, it becomes cheaper relative to it's substitutes.
   • Income Effect
     • When the price of a good falls, the real income of a consumer may increase, so more of the good can be bought.
   • Increase shifts D. curve to right
   • Decrease shifts D. curve to left
   • Factors
     • Fall in price of complementary goods
     • Rise in the price of substitute goods
     • Advertising
   • PED
     • Price Elasticity of Demand. The responsiveness in the demand for a good due to a change in its price.
     • % change in quantity demanded of A / % change in price of A
     • PED > 1 ~ Price Elastic ~ %^D > %^P
     • PED = 1 ~ Unit Elasticity ~ %^D = %^P
     • PED < 1 ~ Price Inelastic ~ %^D < %^P
     • PED = 0 ~ Perfectly Inelastic
     • PED = ∞ ~ Perfectly Elastic
     • What determines PED?
       • Substitute Availability
       • Luxury vs Necessity
       • Proportion of Income spent on good
       • Addictive Goods
   • YED
     • Income Elasticity of Demand The amount of goods and services which can be purchased with one's nominal income.
     • Normal Goods have positive YED
       • A rise in income causes a rise in quantity demanded
     • Inferior Goods have negative YED
       • People tend to demand higher quality as their income increases.
   • XED
     • %change in demand for good B / % change price good A
     • Substitute goods are in competitive demand - XED = +
     • Complementary goods are in joint demand = XED = -
     • XED = 0 ~ No relationships

3. SUPPLY

   • Movement of Curve
     • Upwards Shift