LS1-LS6 Booklet

• Economics is the study of the economy
• An economy is all the goods and services produced in an area
• Goods are tangible (physical)
• Products are intangible (non-physical)
• 4 Factors of Production:

  • capital
  • land
  • labour
  • enterprise
• capital are things which are used to make goods and services
• enterprise is the willingness of people in business to take risks to make a profit
• land refers to natural resources such as oil, forests and land
• labour is all of the work done by humans in production
• The economic problem is how to use available scarce resources to satisfy peoples infinite needs and wants
• the public sectors role is to decide who needs scarce resources the most as there are not enough resources for everyone
• Economic Agents are groups that participate in the economy
• Producers create goods and services
• The economical term for a business is a firm
• consumers buy goods and services made by firms
• firms and individuals are types of consumers
• the government sets the rules that other economic agents must follow. It also produces some goods and services like roads and health care.
• market research allow firms to decide what to produce, how much of it and for whom
• a firms main objective is to maximise profits
• labour is scarce because eventually there wont be enough workers skilled enough or willing enough to work
• firms can create job opportunities for people in the local area, which can help the local economy
• there is a lack of skilled labour to make capital which is needed to make goods
• enterprise is scarce because not everyone wants to take risks
• Economists explain how the economy works by developing models
• models can be used to predict the impact of economic change e.g. the impact on employment if the minimum wage is raised
• Economists rely on data and assumptions to make models because it is difficult for them to conduct experiments
• It is difficult for economists to conduct experiments because there are a lot of factors that impact economic activity
• Ceteris paribus is assuming other variables remain constant
• Ceteris paribus allows economists to isolate one factor that affects the economy
• The opportunity cost of a decision is the value of the next best alternative that was not used
• QUESTION: a firm wants to modernise its IT system and hire some new workers. It doesn't have the funds to do both. What is the opportunity cost of hiring new workers?

  the opportunity of hiring new workers comes at the cost of not modernising its IT system
• Consumers use opportunity cost to decide what to spend their income on
• Producers use opportunity cost to decide what and how to produce goods and services
• Governments use opportunity cost to decide what policies to use
• Data models give a prediction
• CMA - Competition and Markets Authority
• Dynamic pricing is where prices change according to demand and supply
• PPF - Production Possibility Frontier
• A PPF shows the maximum potential output when all resources are used efficiently.
• Capital, Land, Labour, Enterprise are the factors of production