1. AQA Econ 1: Markets and market failure
1.1.1 Nature and purpose of economic activity
Why did you choose Economics as an A-Level?
What other options were there?
Why didn’t you choose Economics plus the alternative options?
AQA Econ 1: Markets and market failure

2. 1.1.1 What you need to know
Candidates should understand that the central purpose of economic activity is the production of goods and services to satisfy needs and wants, and thereby to improve economic welfare
They should address the questions of what, how and for whom goods and services should be produced, and consider the role of economic incentives in providing the answers to these questions
Candidates should appreciate that economists take a broad view of production and consumption activities including, for example, housework, DIY and benefits derived from the natural environment

3. What do economists mean by the ‘economic problem’?
Explain how the economic problem can be applied to education in the UK.
People have unlimited wants
However, there aren’t enough resources available to supply all of these wants
This creates the economic problem of scarcity
The ‘economic problem’ occurs when there are finite resources available to supply infinite wants i.e. scarcity
Therefore, choices have to be made
Examples of scarcity.
Can you add any recent examples that you have seen in the media?

4. Wants are those things that are desired but not essential to survival.
Economic Activity
The central purpose of economic activity is the production of goods and services to satisfy needs and wants.
Economic activity will improve economic welfare, the benefit gained by individuals, firms or society in the production of goods and services.
Needs are those things required that are essential to maintain survival.
Wants are those things that are desired but not essential to survival.
The purpose of economic activity is to satisfy the wants and needs of society
What is the difference between a want and a need?
Are you ever guilty of using the wrong term?
Write a list of 4 needs and 4 wants
The economic problem tries to answer 3 basic questions:
What to produce?
How to produce?
Who to produce for?

5. What, how and for whom goods and services should be produced
What to produce?
Economic incentives will provide economic agents with the information required to tell them what goods and services to produce
How to produce?
Firms will combine the factors of production (land, labour, capital and enterprise) in order to produce a good or a service
For whom to produce?
In a free market economy we produce according to demand and supply
If there is demand for a product a firm may wish to supply it for a profit
Economic agents are the individuals and firms that partake in economic activity, the demand for and supply of goods and services.
A free market economy is one where firms decide what goods and services to produce with limited intervention from the government.

6. The role of economic incentives
Economic incentives provide the reasons for economic agents to provide goods and services
These are based on the price mechanism, the method by which prices for goods and services are achieved
The rationing function occurs because increased demand for or reduced supply of a product will lead to a price rise
The signalling function occurs because changing prices give a signal to consumers and producers as to whether to leave or enter a market e.g. higher prices suggests that consumers should buy less
The incentive function occurs because a consumer or producer is motivated to a course of action e.g. higher prices will incentivise a producer to supply more of a good or service
Economic incentives are the reasons for economic agents providing goods and services. They include:
Rationing
Signalling
Incentive

7. Economists take a broad view of consumption and production activities
Consumption is the use of a good or a service by a consumer.
Production is the provision of a good or service by a producer.
Economists include a variety of activities when looking at consumption and production
These will include goods and services that have both a financial and non-financial incentive, for example:
Financial:
Wages earned in a job
Buying tickets for a football match
Old people’s home
Non-financial
Benefits from the natural environment e.g. walking on the beach
Housework
Do It Yourself (DIY) work
Is childcare the same economic activity if undertaken by a parent or paid for in a nursery?

8. Quick test What is the economic problem faced by society?
Define the term scarcity.
Define the term economic problem.
What is the economic problem faced by society?
How to reduce wants and need
What, how and for whom to produce goods and services
How to maximise profits for businesses
Who to allocate scarce resources to
Can you explain your answer? B

9. Quick test The fundamental purpose of economic activity is?
To increase the supply of renewable resources
To reduce the use of scarce resources
Profit maximisation
The satisfaction of needs and wants
Can you explain your answer? D

10. The Nature and Purpose of Economic Activity
Take it in turns to pick a term and explain it to the rest of the group.
In the study of Economics you will learn a lot of new terminology.
Finite resources
Infinite wants
Wants
Needs
Economic problem
Scarcity
Economic activity
Economic welfare
Economic agent
Free market economy
Economic incentives
Consumption
Production
Can you pick any two words and explain the relationship between them?

11. Test yourself What is the purpose of economic activity?
State and briefly explain 3 economic incentives.
Would an economist view housework as production, consumption or neither? Justify your answer.