economics AOS1

• 2 main branches of economics:

  Macroeconomics: analysis of the overall economy,including markets,businesses,consumers and governments

  Microeconomics: analysis of the market behaviour of individuals and businesses
• 2 main forms of economic analyses

  positive economics: of issues or questions that can be either proved or disproved beyond doubt

  normative: personal opinions,cannot be proved or disproved
• factors of production


  land: resources that occur in nature

  labour:physical and mental effort by humans in the production process eg:workers

  capital:resources made by combining land and labour
• relative scarcity


  resources are limited compared to the demands placed upon those resources via needs and wants
• opportunity cost


  the value of the next best alternative whenever a choice is made
• PPF

  Illustrates what a business or economy can produce

  • any point to the left of the curve is possible but not efficient
  • any point to the right of the curve is impossible
  • any point along the curve is efficient
• PPF link with scarcity and choice

  scarce resources- (economies and businesses) have to choose what products to make with their scare land,labour,capital
• PPF link with opportunity cost

  so the more of product A we make the less of Product B we make so the opportunity cost of making more product A is making some units of Product B

  • shows a business or economy what it has to give up in order to make more something
• PPF link with efficiency/under utilisation of resources

  • efficiency is fully using,fullly utilising all your land labour and capital
  • under utilisation is when resources either have spare capacity or are not working at their best
• trade offs


  occur whenever individuals businesses or governments make choices between different ways that scare resources might be used
• cost benefit analysis


  identifying and then quantifying the expected advantages from a decision and weighing them up against the expected costs from the decision
• how trade offs,choices and opportunity cost relate to each other

  • an economic decison maker has two or more options
  • they make a choice
  • to make that choice they weigh up the trade offs
  • they decide on the winner
  • the opportunity cost of that decision is the runner up
• 3 basic economic questions

  1. what and how much to produce: making decisions about how resources should be allocated
  2. how to produce:
  3. for whom to produce:how the goods and services will be shared between individuals
• economic systems


  collection of organisations that coordinate the production and distribution of goods,services and incomes amongst the population
• Traditonal- features


  focuses on culture and rituals

  eg:hunter gatherers

  answering the 3 questions:

  what and how much: focus on needs,how much might vary with climate

  how: basic/old school methods

  for whom: family/tribe
• market - features

  a pure market economy relies solely on the operation markets where buyers,sellers and prices answer the 3 economic questions

  eg: private property

  what and how much: consumer purchase decisons decide this

  how: businesses are created to maximise profit

  for whom: the market for labour decides how much people get paid which those who get paid more have more resources so they can afford to purchase more of the products made in the economy
• Planned- features

  rely on powerful governments to make key economic decisions and what,how and for whom to produce

  what and how much: governments set targets for all businesses and types of prodcuts

  how: government owns all the businesses and decides how businesses will produce

  for whom:government will set price for all products, government will try to ensure everyone can have their basic needs satisfied
• mixed- features

  most decisions are made by markets and impact on the relative prices determined by those markets

  what and how: combo on market/and government intervention

  how: determined by private owned businesses

  for whom: the market ,government can intervene to make some payments available to some eg:the unemployed
• the three circular flow model


  household sector

  • consumers- those who use goods and services
• business sector

  produce goods and services
• government sector

  the gov or public sector includes the activities and decisions of federal,state and local authorities

  • collect taxes and other revenue from households earning income and use this money to help pay for government spending for the community
• flow 1

  households provide factors of production to business
• flow 2

  business pay households money to rewards households for supplying land,labour and capital to business
• 2a

  households pay taxes to governments
• flow 3

  households and government spend their income on goods and services provided by business
• flow 4

  business produces goods and services and supplies them to households and governments
• boom/expansion

  inflation is high (prices rise)

  unemployment is low
• recession/contraction

  inflation is low

  unemployment is high
• purpose of economic activity

  is to help satisfy societys needs and wants

  • using those scarce resources in the best way possible
• material living standards

  measured by individuals access to goods and sercices

  RELATED TO LEVEL OF INCOMES AND PURCHASES
• non material living standards

  measured by the impact that non material factors have on an individuals quality of life eg: crime,mental health all impact peoples well being

  QUALITY OF LIFE
• public sector

  the part of the economy owned or controlled by the government

  eg: federal,state,local
• private sector

  businesses owned and controlled by individuals
• consumer behaviour

  the study of why,how,where and when consumers choose to purchase or not purchase a product
• consumer self-interest and rationality

  assumes that consumers behave in a rational,logical and self interested way
• maximisation of utility

  utility refers to the satisfaction you get from consuming a product
• maximise marginal utility from consumption

  the extra satisfaction or benefit a consumer gets from consuming an additional unit of that product
• informed decision making

  before purchasing a product consumers try to collect and analyse factual information so that they can weigh up the potential advantages and disadvantages
• incentive


  a thing that encourages or motivates someone to do something
• disincentives


  a thing that encourages or motivates someone not to do something