Economics Part A U3 (AoS1)

• Relative scarcity:

  Having more wants and needs than resources, resulting in not being able to satisfy those wants and needs due to limited resources
• Needs:

  The basic goods and services that are necessary for our survival
• Wants:

  Something we desire to have to improve our levels of satisfaction
• Opportunity Cost:

  The benefit sacrificed (forgone) when choosing something else over it
• Resources:

  The materials used when producing g+s (Labour, Natural, Capital)
• Production Possibility Frontier: A graph that shows the maximum output of an economy with its scarce resources
• Three Basic Economic Questions:

  • What and how much to produce
  • How to produce
  • For whom to produce
• Allocative efficiency:

  Maximising the satisfaction of the needs and wants of society

  • at one end of the PPF
• Productive (technical) efficiency:

  Maximum output with the currently available resources (productive capacity)

  • Anywhere on the PPF
• Dynamic Efficiency:

  How quickly an economy can adapt by reallocating its resources into a product from another
• Inter-temporal efficiency:

  Balancing the allocation of resources between two time periods (being sustainable)
• Perfect market:

  • A large number of buyers/sellers who act independently
  • Homogenous products
  • Ease of exit and entry + inexpensive
• The Law of Demand:

  Inverse relationship, so as the price of a product increase, the total quantity demanded will decrease
• Non-Price factors that effect demand

  • Disposable Income
  • Interest rates
  • The price of the substitution (substitution effect)
  • The price of complements
  • Preferences and tastes
  • Population growth and demographic change
  • Consumer confidence
• Movement in demand

  This is due to changes in price (Expansion/ contraction)
• Shift in demand

  This is due to non-price factors (increase/ decrease)