theme 1

• Positive


  Statements that can be proven true or false, supported or refuted by evidence
• Normative


  Opinions about how economies and markets should work, value judgements that cannot be supported or refuted
• The economic problem is the problem of having scarce resources but society having infinite needs and wants
• Types of resources


  • Capital
  • Entrepreneurship
  • Land
  • Labour
• Consumer goods


  Products bought for consumption by the average customer, also known as final goods
• Capital goods


  Tangible assets such as buildings, machinery, and equipment used to produce consumer goods or services
• Possibility Production Frontiers (PPF)


  • Shows the maximum potential output of an economy
  • Growth in the economy will shift the PPF outwards
  • A shift inwards of the PPF shows the productive potential of an economy has declined
• Purchasing Power Parity


  Rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries
• ACRONYMS


  • Strong Pound (Import Cheaper, Exports Dearer)
  • Weak Pound (Import Dearer, Exports Cheaper)
• Specialisation


  When an individual, firm, region or country concentrates on the production of a limited range of goods and services
• Division of labour


  A process whereby the production procedure is broken down into sequential stages, and workers are assigned to a particular stage
• Disadvantages of division of labour


  • Monotonous
  • Boredom
  • Increase Absenteeism
  • Poorer Quality
  • High labour turnover
  • Structural unemployment
• Advantages of division of labour


  • Better Quality
  • No downtime
  • Capital equipment can be used continuously
  • Less workload/stress
• types of economies:

  free market economy;

  minimum gov intervention, resources privately owned.

  command economy;

  government controls all.

  mixed economy:

  some resources are owned privately and publicly.
• de-merit goods:

  goods that are bad for you but over consumed.

  eg. cigarettes
• consumer behaviour:

  • influence other peoples behaviour
  • importance of habitual behaviour
  • consumer weakness at computation
• consumer inertia:

  what the consumer is used to, they don’t like change.
• free market economy advantages:

  • contributes to a political and civil freedom
  • contributes to economic growth
  • ensured competitive markets
• free market economy disadvantages:

  • manipulation
  • faster wealth inequality
• mixed economy advantages:

  • efficient production and allocation of resources
  • improvement of social welfare
• mixed economy disadvantages:

  • market equilibrium is tough to maintain because of public and private interests
• command economy advantages:

  • low/non existent unemployment
  • speed in decision making
  • equality amongst citizens
• command economy disadvantages:

  • lack of competition
  • lack of specialisation
  • lack of effort
• frictional unemployment is when people are in between jobs
• claimant count is the number of people eligible for unemployment benefits.

  ie. seekers allowance
• labour for survey: based on ILO (international labour organisation) standards, asking people whether they are out of work and actively seeking work.

  ie. home makers
• participation rate is the percentage of population of working age declaring themselves to be in the labour force.
• rational decision making:

  consumer=maximise utility

  producers=maximise profit
• market:

  when consumers and producers come together to exchange goods and services
• utility:

  the amount of satisfaction obtained from consuming a good or service
• rational decision making:

  when consumers allocate their expenditure on goods and services to maximise utility , producers allocate their resources to maximise profit
• ceteris paribus means all things remain the same/equal
• factors that influence buying decisions:

  • fall in interest rate
  • rise in real income
  • increased advertising
  • increase price of substitute product
• interest rate is the cost of borrowing, reward of saving.
• demand affecting market:

  Population

  Advertisement

  Substitute

  Income tax

  Fashion and trends

  Interest rates

  Complements
• total utility is the total satisfaction from a given level of consumption
• marginal utility is the change in satisfaction from consuming an extra unit
• demand:

  the quantity consumer is willing and able yo purchase at a given price
• supply:

  the quantity of a good or service that a producer is willing and able yo supply onto the market at a given time period.
• shift supply curve:

  Productivity

  Indirect tax

  Number of firms in a market

  Technology

  Subsidies

  Weather

  Cost of production