alevel econ for mcq

• Leon Robbins: 'Economics is a science which studies human behavior as a relationship between ends and and scarce means which have alternative uses'
• Economics


  Studies human behavior as a relationship between unlimited wants and finite resources with alternative uses
• Economic activity takes place because we live in a world that has unlimited wants but finite resources
• The fundamental economic problem is that the world has unlimited wants but finite resources
• Choices that must be made to balance finite resources and unlimited wants

  1. What to produce

  2. How to produce

  3. From whom to produce
• Incentive


  A factor motivating an economic agent to behave in a particular way
• A firm sees one of its products has a higher profit margin


  It has an incentive to produce more of that product
• Factors of production


  Inputs that are mixed to produce goods and services
• The four factors of production


  • Capital
  • Enterprise
  • Labor
  • Land
• Capital


  Assets and machinery needed in the production process to transform resources into goods
• Enterprise


  Decision-making and risk-taking when combining the other factors to produce certain goods
• Labor


  Physical human work put in to transform resources into goods, including skills and attributes such as craftsmanship
• Land


  Primary resources involved in production, such as natural resources from the land
• When producing a good or service, the factors of production (capital, enterprise, labor, land) need to be combined
• Capital, enterprise, labor, and land are the four factors of production
• The factors of production are used to transform inputs into outputs
• The factors of production are combined through decision-making and risk-taking (enterprise)
• Institutions


  Organizations that dictate the economic problem of what's produced, how to produce, and from whom to produce
• Main types of institutions


  • Public sector
  • Private sector
  • Voluntary sector
• Public sector


  Organization that uses taxation to provide services such as education and health
• Private sector


  Organizations motivated by financial profit, not run by the government
• Voluntary sector


  Organizations where charitable work is conducted with no or less intention of profit
• Economies


  Comprised of the three institutions (public, private, voluntary)
• Main types of economies


  • Free market economy
  • Command economy
  • Mixed economy
• Free market economy


  Economy where all decisions are made by the private sector with very limited control by the state
• Command economy


  Economy where all decisions are made by the state
• Mixed economy


  Economy where decisions are made from both private and public sectors as well as voluntary organizations
• Economic agents


  Economic decision makers who can recognize the different factors that influence and motivate different economic groups
• Main types of economic agents


  • Consumers
  • Firms
  • Governments
• Consumers


  Those who consume a produced good or service generally for financial purpose, such as general high street shoppers, stock brokers, and people who take out loans and mortgages
• Firms


  Groups of economic agents whose role is to transform the factors of production into goods and services which are then sold to consumers. They can be public, private or voluntary sectors.
• Governments


  Economic agents that provide rules for how firms and consumers should interact when they meet in the market, more evident in more developed countries with greater levels of income and better service sectors
• An economy with greater levels of income is going to have better service sectors because they have more regulation over how the consumers and the producers or firms are going to meet in the market and then interact
• Production possibility diagram


  A diagram showing all possible combinations of goods that are produced by an economy when all factors of production are being used efficiently
• Production possibility diagram


  • Can show opportunity cost tradeoffs
  • Changes in the standard of living
  • The use or underuse of factors in production
• Drawing a production possibility diagram


  1. Draw one line connecting socks and shoes

  2. This line is the production possibility Frontier

  3. Represents the maximum amount of goods the economy can produce
• Points inside the production possibility Frontier are possible to produce but not the maximum
• Opportunity cost


  The value of what has been given up to produce something else
• Changing production from point A to point B


  Indicates the opportunity cost and a tradeoff
• Producing on the production possibility Frontier means using all economic resources efficiently