Economics Unit 1

Economics Unit 1

1. BASIC ECONOMIC PROBLEM

   • Infinite wants and limited resources
     • Needs
       • Something essential to survival
     • Wants
       • Something you would like to have but is not essential to survival

2. FACTORS OF PRODUCTION

   • Land
     • The natural resources used to produce goods and services
       • The land Itself
       • Seas and rivers
       • Buildings
   • Labour
     • The people to be workers
       • Unemployment
       • Education
   • Capital
     • Money
       • Recession
       • Factories and machinery
   • Enterprise
     • Individuals willing to have ideas and take a risk
       • Run a business
       • Education

3. OPPORTUNITY COST

   • The next best alternative foregone when making a choice - what we give up
     • Leisure vs work
     • Sweets vs clothes
     • One GCSE option over another

4. SECTORS

   • Primary
     • Where the extraction of raw materials takes place
       • Mining
       • Farming
       • Oil extraction
       • Forestry
       • Quarrying
   • Secondary
     • Where raw materials are manufactured into goods
       • Car manufacturing
       • Refining oil to petrol
       • Manufacture of electronic goods
   • Tertiary
     • The service sector
       • Banking
       • Tourism
       • Entertainment
   • Public
     • Not profit making
     • Provide a service
     • Positive externalities
       • All benefit
   • Private
     • Aim to make a profit
     • Increase sales
     • Expand
     • Survival

5. SPECIALISATION

   • The production of a limited range of goods by individuals, firms, regions or countries
     • Costs
       • To the firm
         • Cost of training workers
         • Expensive workers
         • Quality suffers
       • To the workers
         • Boredom
         • Skills may suffer
         • Replaced by machinery
     • Benefits
       • To the firm
         • More productive workers
         • Lower average costs
         • Production levels increase
       • To the worker
         • Higher pay
         • Skills are improved
         • More motivation, job satisfaction

6. MONEY

   • Medium of exchange
   • Store of value
   • Unit of account
   • Standard for deferred payment

7. DEMAND AND SUPPLY

   • Demand
     • Movement along the curve
       • Expansion
         • Expansion moves to the right on the curve
         • Price of goods falls, greater quantity demanded
       • Contraction
         • Contraction moves to the left
         • Price rises, lower quantity demanded
     • Shifts
       • What causes them?
         • Population
         • Advertising
         • Substitute
         • Incomes
         • Fashion
         • Interest rates
         • Complementary goods
       • To the right
         • Increase in overall level of demand
       • To the left
         • Decrease in overall level of demand
   • Supply
     • Shifts
       • What causes them
         • Productivity
         • Indirect taxes
         • No. of firms in market
         • Technology
         • Subsidies
         • Weather
         • Costs of production
       • Down/towards
         • Increase in supply (right)
       • Up/away
         • Decrease in supply (left)

8. ELASTICITY

   • Inelastic
     • Less than 1
     • Perfect= vertical
   • Elastic
     • More than 1
     • Perfect= horizontal

9. P.E.D

   • Price elasticity of demand
   • 1. % change in quantity demanded
     • (change in quantity / original quantity) x 100
   • 2. % change in price
     • (change in price / original price) x 100
   • 3. Final stage
     • % change quantity / % change price

10. COSTS

    • Fixed
      • Do not vary with output
      • Pay the same no matter how much you produce
      • E.g
        • Rent
        • Interest on loans
        • Marketing
    • Variable
      • Vary with output
      • The more you produce the higher your variable costs
      • E.g
        • Petrol
        • Raw materials
        • Packaging

11. MONOPOLIES

    • Monopoly
      • 100% market share
    • Monopoly power
      • 25% market share
    • Benefits
      • Consumer protection
      • Efficient
      • Lower unit cost
        • Lower prices
      • New products
      • Patent
    • Costs
      • Less choice
      • Charge higher prices
      • Undercut local competition
      • no incentive
        • Increase efficiency or quality

12. ECONOMIES OF SCALE

    • Purchasing
      • Price reductions as bulk buys
    • Risk - bearing
      • Spread over more outlets, factories and products
    • Finance
      • Bank lend at lower rate
        • Company more likely to pay back
    • Technical
      • Machinery
        • Increase productivity
    • Managerial
      • Specialist managers
        • More efficient
    • Lower average cost per unit
      • Firm can lower price
        • Firm becomes more competitive
    • DISECOMOMIES OF SCALE
      • Loss of control
      • Lack of Co-ordination
      • Lack of co-operation
      • Increase average unit cost
        • profits reduce
          • Prices increase
            • Less competitive