econ

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• Edexcel A-level ECONOMICS THIRD EDITION
• Quintin Brewer
• Economics


  The study of how societies organize scarce productive resources to satisfy people's wants
• Economics as a social science

  • Provides a unique way of examining human behaviour
  • Uses concepts, theories and techniques to analyse economic issues and problems
  • Often uses models to develop theories of behaviour
• Ceteris paribus


  The assumption that all other variables are held constant to enable deductions to be made
• It is impossible for economists to conduct laboratory experiments because economics is a social science involving people
• Positive economics


  Statements based on facts that can be proved or disproved, including what was, is or will be
• Positive economic statements can be verified as being true or false by reference to data or evidence or by using a scientific approach
• Economists often use models as a way of predicting behaviour
• Positive economic statements


  Objective statements based on evidence or facts that can be proved or disproved
• Ceteris paribus


  When the effect of a change in one variable is considered, it is assumed that all other variables are held constant
• Analysis is usually based on the ceteris paribus assumption. However, removing this assumption may be useful in evaluation
• Positive economic statements are objective statements based on evidence or facts that can, therefore, be proved or disproved
• Economists often use models as a way of predicting behaviour. It is possible to make positive statements on the basis of 'models', such as the impact on price of a product following an increase in demand
• Positive economics relates official data such as gross domestic product (GDP), the price of oil, the rate of unemployment and the rate of tax on sugar. It may also be associated with the use of models as a way of predicting behaviour
• Normative economic statements


  Subjective statements based on value judgements and cannot be proved or disproved
• Normative economics is usually associated with discussions about economic policy
• Examples of normative economic statements

  • Whether there should be a minimum price for alcohol
  • Whether there should be subsidies for green energy, e.g. solar energy
  • Whether there should be road tolls
  • Whether there should be an increase in the tax on cigarettes
  • Whether there should be more private sector provision in the health service
• The assumptions underlying economic models are invariably based on value judgements
• The economic policies promoted by economists are likely to be heavily influenced by their values and politics
• The basic economic problem is that wants are infinite but resources are limited in supply, so choices must be made
• The economic problem


  • What to produce and how much to produce
  • How should the goods and services be produced
  • How should the goods produced be allocated
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Renewable resources


  Resources that can be replaced naturally after use
• Non-renewable resources


  Resources where continued consumption will eventually result in their exhaustion
• Opportunity cost


  The next best alternative that is forgone when a choice is made
• Opportunity cost is a real cost measured in terms of something that is forgone
• Examples of opportunity cost


  • For a consumer: a university student might have enough money to buy either a jet ski or a surfboard. If the student decides to buy the jet ski then the opportunity cost is the surfboard.
  • For a firm: the firm might have to make a choice between its two priorities, e.g. buying a new IT system or building a new factory. If it chooses the IT system then the opportunity cost is the new factory.
  • For the government: suppose the government has £10 million with which to fund one of its two main priorities that both require a £10 million investment — building a new school or building a new university. If it decides that its first preference is the school while the second preference is the university, then the opportunity cost of building the school is building the university
• Economic goods


  Goods created from resources that are limited in supply and so are scarce, and therefore command a price
• Free goods


  Goods that are unlimited in supply, such that consumption by one person does not limit consumption by others, and therefore have an opportunity cost of zero
• Production possibility frontier (PPF)

  A curve showing combinations of two goods that could be produced by an economy if all of its resources are employed fully and efficiently