1. A LEVEL ECONOMICS SECTION 1 REVISION NOTES www.fetsystem.com

2. Scarcity A situation when a choice is to be made A situation when a choice is to be made Everyone in this world has to face this situation of scarcity Everyone in this world has to face this situation of scarcity It gives rise to the basic economic problem It gives rise to the basic economic problem –Scarce/limited resources and unlimited wants

3. Choices at all levels Individuals Individuals Firms Firms Governments Governments

4. Individuals The individuals are forced to make a choice The individuals are forced to make a choice Example Example An individual may have to chose whether to buy a shirt or a pant An individual may have to chose whether to buy a shirt or a pant

5. Firms Firms are also forced to make choices Firms are also forced to make choices Example Example A firm may have to chose whether to spend the money or marketing department or research and development department A firm may have to chose whether to spend the money or marketing department or research and development department

6. Governments Governments which are considered all powerful too have to make choices Governments which are considered all powerful too have to make choices Eg. Eg. Government has to make a choice whether to spend the public money on defense or healthcare Government has to make a choice whether to spend the public money on defense or healthcare

7. Opportunity cost The next best alternative foregone when a choice is made The next best alternative foregone when a choice is made Opportunity cost is never in money value Opportunity cost is never in money value The benefits which could have been received by taking an alternative action. The benefits which could have been received by taking an alternative action.

8. 3 Basic Questions What to produce What to produce How to produce How to produce For whom to produce For whom to produce

9. Different Allocative Mechanisms Market economies Market economies Planned economies Planned economies Mixed economies Mixed economies

10. Market economies Market economy is an economy where resources are allocated by the price mechanism, the consumers determine what is produced. Market economy is an economy where resources are allocated by the price mechanism, the consumers determine what is produced. Very less role of the government Very less role of the government Eg. United states Eg. United states

11. Planned economies Planned system is an economic system where resources are allocated by the, the state determines what is going to be produced. Planned system is an economic system where resources are allocated by the, the state determines what is going to be produced. No consideration given to market forces or the businesses No consideration given to market forces or the businesses Eg. USSR Eg. USSR

12. Mixed economies A form of economy which combines the good features or advantages of market and planned economy A form of economy which combines the good features or advantages of market and planned economy Business activity controlled by market forces Business activity controlled by market forces The government provides the essentials: education, health and security The government provides the essentials: education, health and security Eg. Eg.

13. Production Possibility Curve(PPC) It is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources It is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of productive resources

14. The margin: decision making at the margin

15. Positive statements Actual facts and figures which are both measurable and comparable Actual facts and figures which are both measurable and comparable

16. Normative statements Opinions or suggestions Opinions or suggestions Often called judgements Often called judgements

17. Ceteris paribus

18. Factors of production Land Land Labour Labour Capital Capital Enterprise Enterprise

19. Land Natural occurring resources used for production purpose Natural occurring resources used for production purpose Eg. Eg. Earth on which mills are built Earth on which mills are built Water in which fish is found Water in which fish is found raw materials used to produce goods raw materials used to produce goods

20. Labour Manual and mental effort to produce or deliver goods and services Manual and mental effort to produce or deliver goods and services People who are willing or able to work are known as labour work force. People who are willing or able to work are known as labour work force. Eg. Clerks Eg. Clerks Computer technician Computer technician O level economics teacher O level economics teacher

21. Capital Manmade goods to produce other goods and services Manmade goods to produce other goods and services Capital is classified into capital goods and consumer goods Capital is classified into capital goods and consumer goods Eg. Eg. Machines Machines Factories Factories Roads Roads

22. Enterprise The people who bring the other 3 factors of production together to produce goods and services. The people who bring the other 3 factors of production together to produce goods and services. In this process they do the decision making and risktaking In this process they do the decision making and risktaking Eg Eg Businessmen Businessmen

23. Division of labour

24. Money

25. Characteristics of Money

26. Functions of Money

27. Efficient resource allocation

28. Economic efficiency

29. Productive efficiency

30. Allocative efficiency