econ paper 1

• Need

  Minimum goods/services required for human survival
• Want


  Desire for a good/service (luxury goods)
• Needs and wants can change over time depending on popularity, demographic and income
• Central purpose of economic activity

  Production of goods/services to satisfy needs and wants
• Key economic decisions

  • What to produce
  • How to produce it
  • Who will benefit from the production of this good/service
• Key economic groups

  • Consumers
  • Producers
  • Government
• Factors of production and their rewards

  • Land - Rent
  • Labour - Wages
  • Capital - Interest
  • Enterprise - Profit
• Scarcity of resources


  Choices are made because of the scarcity of resources
• Opportunity cost


  The value of the next best alternative in a choice
• Market


  Where buyers and sellers interact to establish a price and allocate resources
• Markets sell scarce resources with higher prices in order to not deplete scarce resources
• Factor market


  Sells all the factors of production, land, labour, capital and enterprise
• Product market


  Where final goods and services are sold
• Sectors of the economy


  • Primary - the extraction of raw materials
  • Secondary - manufacturing of raw materials
  • Tertiary - selling the goods/service
• Due to the lack of raw materials in the UK, there are a fewer number of employees working in the primary and secondary sector, over half are working in the tertiary sector
• Specialisation


  When a person/business/country is dedicated to producing a small number of products in order to increase efficiency
• Division of labour


  When the production of a specific product is split up into jobs for different workers in order to increase productivity
• Specialisation

  • Increase efficiency
  • Increase Production
• If the market declines/ the product isn't demanded anymore, specialisation could lead to a decline in the company
• Division of labour

  • Increase production
  • Increase quality
  • Workers become experts + gain new skills
  • Increase in job opportunities
• If worker is not present then production can halt
• Low motivation due to repetitiveness of job
• If skill is not required decrease in job opportunities
• Machinery can replace some skilled workers
• Demand


  The amount of a good/service the consumer is able and willing to buy at a given price over a period of time
• Factors which influence demand

  • Population
  • Advertisement
  • Substitutes
  • Income
  • Fashion
  • Interest
  • Complementary goods
• Supply


  The amount of a good/service the producer is able and willing to make at a certain price level over a period of time
• Factors which influence supply

  • Production costs
  • Related goods
  • Increased competition
  • Environment
  • Subsidies
  • Technology
• Equilibrium price

  The price when supply and demand meet on the diagram
• Excess supply/demand leads to higher prices and shortages
• Revenue

  Price x Quantity
• Complementary goods


  2 products that are often consumed together
• Substitute Goods


  Goods that can replace each other
• Derived demand


  When the demand of a good/service increases from the demand for another good/service
• Changes in prices don't always cause equivalent changes in demand
• Factors which affect PED


  • Number of Substitutes
  • Degree of necessity
  • Proportion of income
• PED


  The responsiveness of demand to a change in price
• If PED is 1 or above - elastic (responsive)
• If PED is less than 1 - inelastic (unresponsive)
• PED formula


  change in quantity demanded/ change in price