econ

• Contents page


  • Nature of Economics: scarcity, choice and opportunity cost pages 1- 6
  • Nature of Economics: Production possibilities curves and different economics systems pages 7 - 14
  • Demand and supply: markets and market demand pages 15 - 20
  • Demand and supply: supply and market equilibrium pages 21- 28
  • Elasticity: concept of elasticity and PED pages 29 - 35
  • Elasticity: YED, PES and XED pages 36 - 45
  • Consumer theory: marginal utility and consumer demand pages 46 - 50
  • Theory of the firm: production and costs pages 51 - 60
  • Theory of the firm: revenue and profits pages 61- 73
  • Market structure: Perfect competition pages 74 - 80
  • Market structure: Monopoly pages 81 - 84
  • Market structure: Monopolistic competition pages 84 - 87
  • Market structure: Oligopolistic competition pages 88 - 92
  • International trade: Absolute and comparative advantage pages 93 - 98
  • International trade: Barriers to trade pages 99 - 102
  • Exchange rates and changes in exchange rates pages 103 -111
  • International trade: balance of payments and multinational corporations pages 112 -119
  • Money and financial institutions pages 120 - 127

  
• Economics is the scientific study of the ownership, use and exchange of scarce resources, the science of scarcity
• Economics is regarded as a social science as it uses scientific measures to build theories that can help explain the behaviour of individuals, groups and organisations
• Economics tries to explain economic behaviour which arises when scarce resources are exchanged
• Ceteris paribus rule


  'other things remain the same'
• The central purpose of economic activity is the production of goods and services to satisfy needs and wants, and therefore to improve economic welfare
• Economic resources


  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  • Land on which your business is located e.g. your factory, but also it includes natural resources from the ground, the sea, etc. for example: oil, copper, coal, gas, fish, timber, soil for agriculture and so on
• Labour


  • Workers/staff/employees needed in production of goods and services and includes all human effort both physical and mental They can be full time, part time, temporary. They can also be skilled/unskilled/semi-skilled, etc. They can be white collar (office workers, 'jacket and tie' jobs, professional jobs) or blue collar. (labouring jobs, working with hands, etc.)
• Capital


  • Man-made equipment and machinery, buildings, offices, technology, robots, etc. needed in production. It is physical capital, not finance in this context
• Entrepreneurship


  • The function of bringing together the other factors of production (organising, controlling, managing, coordinating) in order to produce goods and services. Often this will involve risk taking where finance will be invested in return for a reward in the form of profit
• Renewable resources


  A resource that with careful management can be renewed as it is used, it can be replaced naturally after use
• Non-renewable (finite) resources


  Resources are finite or scarce, and run out as they are used
• Macroeconomics


  Concerned with totals or aggregates, how society (whole economy) acquires resources, uses its resources and issues that affect these resources
• Macroeconomic issues


  • Total unemployment in the UK economy
  • Inflation rate
  • Economic growth
  • Income distribution
  • Money supply
  • Interest rates
  • Aggregate demand and supply
• Microeconomics


  Concerned with individual units and how they acquire resources and make decisions regarding those resources
• Microeconomic issues


  • Individuals
  • Businesses/firms
  • Households
  • Industries e.g. the finance or health sector
  • Market demand and supply
• The fundamental economic problems faced by every individual, business and society are scarcity, choice and opportunity cost
• Resources are scarce, there is only a limited amount of land, capital, labour, oil, agricultural production, technology, money, time, etc. Needs and wants of individuals, businesses and societies are unlimited. Resources also have alternative uses to satisfy different needs
• Because of scarcity, individuals, businesses and societies are forced to choose between their unlimited needs
• Opportunity cost


  Cost in terms of the benefits and/or the value of the next best alternative given up, whenever individuals, businesses and societies make a choice
• Opportunity cost for individuals

  • The opportunity cost of buying a motorbike is a new kitchen
  • The opportunity cost of spending two hours revising Economics is two hours revising Maths
• Opportunity cost for businesses

  • The opportunity cost of buying a new set of machines is a wage rise for employees
  • The opportunity cost of developing a new product is expanding into a new market with an existing product
• Opportunity cost for governments

  • The opportunity cost of investing in a new hospital is two new schools
  • The opportunity cost of expanding the rail network in London is increasing expenditure on the air force
• An economic good takes resources to produce whereas a free good has no opportunity cost e.g. air, sunlight
• The environment is also an example of a scarce resource, affected by economic decisions
• Trade off


  A situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. It implies a decision to be made with full comprehension of both the upside and downside of a particular choice
• In Economics the term 'trade off' is expressed as opportunity cost
• A good economist is a clear thinker with the ability to analyse economic ideas and material
• Scarcity


  The fact that resources are limited relative to the unlimited nature of human needs for these resources. This is the 'fundamental economic problem of scarcity.'

  
• Shortage


  Results from market failure caused by demand for a particular good or resource being more than the supply of it
• Even if a market failure is addressed and there is no shortage in the market the problem of scarcity still exists
• Production possibility curve or frontier


  1. Shows what society or an economy could produce with present supplies of land, labour, capital and technical knowledge, assuming that all available resources are being used to the full

  2. Illustrates the economic problems of scarcity, choice and opportunity cost

  3. Represents the boundary between the goods and services which can be produced, and those which cannot be produced in an economy (illustrating scarcity)

  
• Shape of the production possibility curve

  • A straight line production possibility curve has a constant opportunity cost
  • A concave curve has an increasing opportunity cost
  • A convex curve has a decreasing opportunity cost
• The standard PPF is concave to the origin since the opportunity cost of producing more of one particular good and less of another will change as movement occurs along the frontier

  
• Capital goods


  Things like raw materials and machines used to produce other goods - they are very important for economic growth
• Consumer goods


  Goods bought by individuals and firms to satisfy needs and wants e.g. TVs and food
• If an economy decides to produce capital goods rather than consumer goods

  Economic growth will be greater than if people had enjoyed more consumer goods

  
• If faster economic growth is to take place then more resources must be devoted to capital goods and less resources to consumer goods
• The opportunity cost of increasing capital goods production is the fall in consumer goods produced